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Linda Klumpers Ph.D. is a scientist from The Netherlands. Listen in as she describes how she has built an interactive web-based tool that allows you to find the best cannabis product for your specific need.
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Matthew: Hi. I'm Matthew Kind. Every Monday look for a fresh new episode where I'll take you behind the scenes and interview the insiders that are shaping the rapidly evolving Cannabis industry. Learn more at cannainsider.com. That's cannainsider.com. Now, here's your program. In the quest to find ways that natural botanical solutions can help us with different symptoms and general health, we often find ourselves without a compass, unsure where to turn for quality, scientifically-backed information. Our guest today, Linda Klumpers, aims to help us use science to arrive at the perfect customized cannabis solutions using her online tool Cannify. Linda, welcome to CannaInsider.
Linda: Thank you, Matt.
Matthew: Give us a sense of geography. Where are you in the world today?
Linda: I am sitting in the Art District of Denver, Colorado.
Matthew: Okay, great. And I am in Edinburgh, Scotland.
Linda: Hey. That's really nice.
Matthew: Linda, can you tell us a bit about your background and journey, and how you got to this point in your career?
Linda: Of course. So I have always been interested in many things, and mainly in the brain and in biology. And that is actually why I started neurosciences at the University of Amsterdam. And after that, I'm keeping it really short now, I started a PhD in Clinical Pharmacology, yeah, of Cannabinoids. And I also have a degree in Clinical Pharmacology. I'm also a registered clinical pharmacologist in the Netherlands. And I've been doing cannabinoid research since 2006. After my PhD, I mainly did consulting for various life science companies and, at some point, I just decided to start for myself. Yeah. If I would make it really long, it would include a lot of different activities with music-making and what not. But I think that this is...
Matthew: Yeah. That's okay.
Linda: ...more relevant for the interview. Yeah.
Matthew: Yeah. And what is Cannify?
Linda: Cannify is an online tool that can be used for patients and also for others that are interested to find the scientific information that you can use to educate yourself for making better product decisions. And it's also useful for companies to make products better. And what we also want is to contribute to the improvement of the science of cannabinoids and of the endocannabinoid system.
Matthew: Okay. Can you paint a picture of the problem here, so listeners can understand what Cannify does exactly? I want them to understand, like, if they were looking over your shoulder, like, what problem it solves, so they can understand as they can use it online then.
Linda: Yeah. Yeah. Sure. Because this is the important part for me, I think. So there are a lot of problems. So what I encountered myself is people have a very curious nature, and they try to find information all the time about what they want. But the problem that I found is that it's very tough to find this information from very reliable sources. Because if you go to the internet, there's information everywhere about cannabis and cannabinoids. And you can talk about a lot of people who call themselves "experts" or people with passion. But if people say that they are a specialist, what do they actually know and where did they get their knowledge from. And I think that it's very important to marry the two areas of academic knowledge, but also people with experience in the field.
And that is exactly what I try to do, but with as little bias as possible. Because a lot of people have a particular agenda, in terms of trying to get cannabis legalized or trying to get cannabis prohibited. And I see myself as a scientist without any agenda like that. What I want is to bring the knowledge that we have from studies, etc. to people so that they can have this objective source to get this information from. So my problem, in a nutshell, is really that there is a lot of biased information out there often without any references. And I try to make it transparent to people where the information that I give comes from. So I hope that's clear. Yeah.
Matthew: Okay. So I'm gonna pull up your website right now, cannify.us.
Matthew: And I just wanna paint the picture of what people can see. So when you go to cannify.us, it says, "Are you interested in learning more about the potential of cannabis and cannabis product? Use our tool for customized educational information." Then, you click a button that says, "Start the Cannify Test," and it asks you a bunch of questions, "Where do you live?" And then it goes into detailed questions to help you arrive at what might be the best solution for you. Can you just talk about that aspect a little bit?
Linda: Sure. So do you mean how the tool works or...
Linda: ...what we t-...
Matthew: Yeah, how the tool works.
Linda: Yeah. Okay, sure. So maybe there is a little bit to add to your previous question with regards to this one. And it is that there is also a lot of information on the internet that is very interesting. But what do you do with it? It's not really actual-...It's nice to learn about genes. It's nice to learn about pharmacology. But how do you actually apply this information?
Linda: Yeah. So to be very up front, it is very hard to apply it because everyone's different. But I also think that if you do not start, at some point, with trying to apply this information, you will never know how well it works and you will never know how to improve it. So how this tool works is you click on this button, you start the test. The test will ask you various questions about, for example, the symptom you're looking for or the effect you're looking for, and also about yourself, who you are. And every question is made for us to make a better prediction, let's say, what to potentially use for your particular indication and personal characteristics.
Linda: Yeah. So it will tell you information about the cannabinoids, the dose, and also the administration methods that has been used in previous studies with people with your symptom, for example, that worked for them. So this is really to give you scientific information about people that are as much like you as possible. And this information can be that someone with your symptoms or personal characteristics have been helped in the past. It can also give you the information that there was never evidence or that there's not enough evidence. And these are potential outcomes as well. The whole goal of this is to bring the science closer to the people with a nonscientific background to help them understand better what research has been done and, potentially, how this could apply for them.
Matthew: Okay. So it's like a bridge between the desired outcome people want and what medical research exists between the outcome they want, and that medical research kind of builds that bridge between the two things?
Linda: Exactly. Exactly. And then there is this extra step, what I just mentioned with regards to the actional part. So once you have this scientific information, and we try to present that in an easy-to-understand report where every different element is mentioned separately, so with regards to, "Have there been any studies that showed beneficial effects or maybe mixed results? What compounds were involved in those studies? What administration method? What dose?" And there will be scientific reference. So it's a little report. But then the next step, if there actually turns out to be a potential beneficial effect, will be the comparison between your personal report and the products that are out there on the market.
And then we try with algorithms to make a matching score between those products and your personal report. So for example, this product will be 83% relevant for your report, and the other product might be 20% relevant. So it is not, let's say, an advice or anything. But it is to try to give people insight in the elements that are important for the science that is out there, for potential decision-making, etc., etc. But we're not making any claims. We really hope that people can use this information and bring to their healthcare provider, for example.
Matthew: So I'm on, like, Question 6, just to give listeners an idea. And it says, "Choosing only one option, what do you want to use cannabis for? I want relief from nausea, pain relief, sleep, anxiety, appetite, PTSD; I want to feel euphoric, more creative; I want to reduce the number of epileptic seizures; or other." So just to give people an idea, it's kind of narrowing down what you're looking for, and then try to present a scientifically-backed reason what product or service. It's kind of like a web-based smart guide to help steer you to a product that would help your particular situation, I think, might be the best way...I'm just trying to introduce this because we're talking about a website and people can't see it. So I'm trying to make it as clear as possible. But let's...
Linda: Yeah. So maybe, I can also give comments about that, if you don't mind?
Linda: Because there are a few things I want to say. First, a very tiny-detail thing. You mentioned Question #6. I just want everyone to know that depending on what question you fill in and how you fill it in, you might be brought to a different question than someone else. So maybe this is Question #6 for you, but maybe #5 or #7 for someone else. But that is just a little detail.
Matthew: Yeah. Sure. Sure. So it has dependencies built in. Based on your answer, it might show you a different question next or so forth.
Linda: Exactly. That's right.
Linda: So that's the one thing. But maybe a more important thing is that the symptoms that are listed now is the first selection. We already have added more symptoms for people because we have not been online for such a long time, and we are still improving and expanding. But we wanted, rather, to have a small number of indications worked out really well and then expanded, rather than having a lot of questions with a little bit of information about all of them...
Linda: ...a lot of symptoms. Yeah.
Matthew: Makes sense.
Linda: Yeah. And then the other thing I wanted to mention is, okay, that I know that there are quite some people out there that try to do the same as us, and some are doing a good job. Other people I'm less impressed by. But what I want to say is that what distinguishes us is that we take the science, the data, the clinical science to make it very clear, so that means research on people, and then we make a predictive model. Rather than, what a lot of other people do is gather a lot of data from the field, from people using cannabis products from dispensaries and so on, then try to do statistical analyses on them, and then try to make a matching tool.
And I think that what I'm doing is way better as a start, and we should integrate the data from other companies maybe or the data-gathering method that we use ourselves and make the questionnaire better. But I think that this starting point of starting from clinical science is very important for the quality of the predictability.
Matthew: Okay. And can you tell us a little bit...You talked a little about your background in clinical pharmacology. Can you just introduce what a clinical pharmacologist does, just a quick summary, so we can understand that at a high level?
Linda: Yeah. I love that question. That is very important because a lot of people just use all these terms without even realizing that other people might not understand what it is. So pharmacology means "the study of drugs," and clinical means that you are doing that study of drugs on humans. So it's studying drugs on humans. Yeah. I think that that's the important part.
Matthew: Okay. Okay, good. And tell us about what an antagonist drug is, or an antagonist drug - I think I got that right - what those type of drugs are and what they mean for a cannabis user?
Linda: Yeah. Yeah. So the study of drugs means drugs are...They go into a body and, in that body, they give effects. And there are many different ways that these compounds, these drugs, can give effects in the body. And one of those ways is that they bind to a particular binding place, after which, something happens. And in the case of an agonist and an antagonist, a drug finds the binding place that is suited for them and then, at the binding place with the compounds combination, is giving a particular effect. Something is going to happen. That is an agonist. What can also happen is that a compound finds a binding place, sits there, and decides, "I'm not going to do anything." That is an antagonist. You have a compound binding to a binding place, a receptor, and nothing is happening. The receptor can be blocked from other compounds that want to bind there.
Linda: And then you even have more variations. To keep it very simple, I will give just one more example that is that a compound goes to the receptor and gives an inverse effect, and then we are talking about inverse agonism.
Matthew: Okay. Talk a little bit about that a little bit more so we can just understand the difference.
Linda: Yeah. I'm trying to mention that last thing because a lot of people confuse antagonism and inverse agonism. Because antagonism sounds like "anti," so we think that there's...
Linda: ...yeah, an anti-effect of the agonist, but that's not true. There's just nothing happening. And this has been a very important...Let's say, yeah, 15 years ago, around the time when I started my PhD, when the pharmaceutical industry was very interested in this antagonism for various reasons.
Matthew: Okay. And tell us about the munchies and what you know about that coming from, you know, a clinical pharmacology background, and how we might be able to mitigate the munchies effect from cannabis?
Linda: That's an excellent bridge.
Matthew: Is that a scientific term, "the munchies?"
Linda: Not really. But I understand what you mean. We're more talking about energy balance than the munchies. Energy balance and reward, of course. Because a lot of people nowadays, they eat...well, especially, here in United States, I see them eating hamburgers and so on, and other things that do not necessarily have the nutritional value that their body really requires. So if I take a chocolate, I do that not because otherwise I starve, but just because I like it. So there is a lot of elements that are not necessarily related to the real nutritional value, but also to reward.
But yeah. The reason why I said that's an excellent bridge is that the pharmaceutical industry interest in the antagonism and inverse ag-...So the pharmaceutical industry that was interested in antagonism exactly had to do with this idea of the munchies. So let me explain. When the endocannabinoid system was discovered...So the endocannabinoid system is a physiological system in the body where these ligands, these agonists, for example, you were talking about, are being produced by our own bodies, and we have binding sites for these compounds to actually have effect. And there is a whole system involved with these agonists, these binding sites, with transporters, with enzymes that make these compounds and break them down. And all these elements together are called the "endocannabinoid system."
And when this system was found, scientists thought, "Okay. So if we are able to induce the munchies with, for example, THC, which also binds to this endocannabinoid system, then we should also be able to block this effect in a way."
Linda: Yeah. And that is when many different pharmaceutical companies started developing compounds that might block this effect because they thought, "This might be a blockbuster. This might actually fight obesity." And they went even a few steps ahead, "Maybe this can fight addiction, like nicotine addiction or dependence." And what was very interesting is that after that, a lot of pharmaceutical companies were trying to get this to the market as soon as possible because there's various reasons for that. You want to be the first, and you want to help people as fast as you can. And well, these motivations are different for different people, of course.
But anyway, yeah, the company who brought it to the market first, I think they might have done this way too hasty. Because why do a lot of recreational cannabis users use cannabis? This is a question for you, Matt.
Matthew: Okay. I think they use it for mostly wellness, pain, fun, relaxation...
Matthew: ...all the above.
Linda: Exactly. So for wellness, fun, relaxation. People use it recreationally because they like it. It gives a pleasant effect. So you can maybe understand that if you give something that antagonizes these effects, it might not just inhibit the munchies, it might also block these fun effects. And that's exactly what happened. So in this case, people who were vulnerable to it did not only lose weight, but they also got depressive feelings and suicidal feelings. And eventually, the drug had to be taken off the market. But this is, yeah, the whole story about trying to block the munchies in...well, it was in the noughties of this year...
Matthew: Oh, okay.
Linda: ...of this century. Yeah.
Matthew: So long story short, when you try to take away some effects, you end up taking others away as well that you may not have wanted taken away, it sounds like?
Linda: Exactly. And that is, especially, likely for the endocannabinoid system. Because if you look at other physiological systems in the body like the serotonergic system, there are so many receptor subtypes. And every receptor subtype, every binding site that is just a little bit different from the other binding site also regulates slightly different systems. And with the endocannabinoid system, the problem is that, for example, there are two different binding sites now that the scientific world has a consensus about, let's say, too. So you have type 1 and type 2 that are their glorious names.
And type 1, for example, is present in so many places in the body. So if you want to target type 1, then you are...It's very easy to just block all of them at the same time if you want to block them, or to activate all of them. So you have to use all kinds of tricks to not let that happen, but that's not easy.
Matthew: Yeah. And you've mentioned that sometimes experiments on rats and mice may lead to misleading results. Can you talk about that a little bit?
Linda: Yeah, of course. So how I typically explain it to people, "Matt, would you like to take a drug that has been tested on me as a model for you as a person?"
Matthew: I mean, I don't know. If you're a human, that might sound okay to me.
Linda: Yeah. But you don't sound convinced either.
Linda: [inaudible [00:23:16] You were like, "Yeah, right." Exactly. So can you imagine if someone develops a drug based on a mouse, a rodent?
Matthew: Yeah. That's different. I would prefer a human. But not if it hurts them. So I don't know what I'm saying anymore.
Linda: Okay. No. So there are various problems with the translation or extrapolation from a rodent to a human. I mean, well, they're a different species. They have a different size. They have different mechanisms in the [inaudible 00:23:47] For example, they break drugs down differently. There are so many differences. But then there are other differences as well. You cannot ask a mouse, "How are you feeling?" And that might sound funny, but it's actually a big problem for drug development. So let's take an example from cannabis research.
Linda: Yeah. So if we look at a very famous example of people suffering from multiple sclerosis. Multiple sclerosis is a disease by which, let's say, neurons get damaged, and that has horrible consequences for people. That can result in a lot of pain. It can result in loss of muscle function. People can get paralyzed. It's horrible. And people with multiple sclerosis have reported that they have beneficial effects when they use cannabis. They report a decrease in pain. They also report a decrease in muscle spasticity. And the fun thing is...well, it's not fun at all. But if you try to measure to what extent the spasticity of these people actually decreased, you will not measure anything. But these people will report fewer spasticity.
And what is important here, whether their spasticity really decreases or whether they feel like it decreases, well, I personally would rather feel like it decreases than maybe I don't feel anything, and it does decrease. And if you would test things like this on a mouse...I'm not saying that it is the case in this particular story or particular example. But you can imagine if you try to measure something and you don't measure a change in animals, but you do measure a change when you talk to people, then that is something that's very important that you might miss. And the other way around too. You can measure particular things in rodents that you would never measure in humans. And therefore, I think that it might be necessary in many cases to use animals for particular studies but, in many cases, not.
Matthew: Yeah. Good point. I think sometimes we say like, "Hey, it was tested on a rodent successfully, and so just extrapolate that it will be successful on you, the same product." But it sounds like it might not be, even though we're both mammals. So well said. I wanna transition to a couple personal development questions, Linda. Is there a tool you use that helps with productivity in your business or personal life that you'd like to share?
Linda: Yes. It's actually a very, very simple tool. But what I use regularly, and I've also used this year in my PhD, that is a website, mytomatoes. And it uses the Pomodoro Technique. And it is a very simple idea that you work in blocks of 25 minutes. And after 25 minutes, you have a 5-minute break. So you can get your cup of tea or whatever you're interested in, and then continue working. And for me, this really helps planning my day better and also focusing. But there is actually another tool I would also like to mention, if possible.
Matthew: Okay. Yeah.
Linda: Yeah. And that is a project management tool.
Linda: Because what I see people doing a lot is making lists of things they have to do. And for me, making lists, that helps on a daily basis, so for example, if I plan mytomatoes on a day. But it also often does not really help because you lose the dependencies between activities. And therefore, I use casual.pm. I really like that tool because you see kind of a block model and you see the relationships between those blocks. So for me, that really helps.
Matthew: Well, that's good. Yeah. I use the Pomodoro Method occasionally too. Not every day. But the app...I think I just got it from the App Store. It's just called "Pomodoro," which just means "tomato" in Italian is "pomodoro." And it is a great system. I mean, it really does incentivize you to work in kind of strong blocks, then take a break and stand up. Which they're really saying now is really key to help physiologically just to stand up once an hour and kind of move around. So we don't turn into, like, Monty Burns from "The Simpsons" and, like, this old, decrepit person. So well said.
And now, being from the Netherlands and now living in the U.S., can you share some of the differences between the cultures you find interesting or you've had to adapt to? I'm particularly keen on your answer because I've been going around to a lot of countries the last couple years and taking it all in, and kind of want to get your take on what it's like to live in the U.S. and how it differs.
Linda: Sure. And I would like to hear your thoughts as well, of course, at some time. So there are many differences. And one big difference here is that, once a decision needs to be made, it's really made with a much bigger speed than Dutch people make decisions. Because Dutch want to involve everyone in their decision-making process. They don't want anyone to be felt left out. And here, people, they just take the decision because they have the authority to do so or so. And I think that that can work really well.
Another big difference, I think this is the biggest difference I would almost say that I would have to get used to, but I probably will never get used to this. That is that the Dutch have a very direct way of communicating. And in United States, it's a very indirect way of communicating.
Linda: So yeah. We just say what we think, and the Americans are more cautious to say what they think. They try to stay really friendly and polite. And the funny thing is that what a lot of American people don't realize is that this politeness, by not really saying what you think, is being perceived by the Dutch as very hypocritic. They think it's not fair if you're not telling me what you thin. And that is something...I notice by hearing it from other people that I insult people here regularly without my...Really. I have no intention to do so. I don't mean it that way. But if I don't like something, I'll just say it. I try to be more cautious and careful about it, but it's still pretty tough.
If we don't like each other's work and you want to see how you can improve it, you just say, "I don't like this and this, and this is how I think you can improve it." And trying to talk around that, I think, is very inefficient. But it's just a matter of what I'm used to.
Matthew: I think, it didn't used to be quite that way so much. It's the last couple decades with the onset of political correctness is that you always kind of have to hedge what you say because someone might get offended. And I don't know if I like that. But I mean, how can you...Everybody's spectrum of what might offend them is not something we can all agree on. So I understand where you're coming from. And there's a tradeoff there. It sounds like it's a little bit...It's interesting because you speak directly, but then there's this consensus that needs to be driven, so everybody in an organization needs to decide together. So those two things are...You wouldn't think about those two things going together, but it's an interesting combination.
My observation just - I don't know, I think it's been 12 countries maybe in the last 2 years, maybe a couple more, I'm kind of losing count...
Matthew: ...is that, I think, outside the U.S. in developed countries outside the U.S., there's maybe a little better quality of life, in terms of balance and not being so stressed out. And people can walk to more places versus driving. And there's just a little...There's less stress. So they have the work-life balance figured out better. But then, in the States, it's the States taking...Most of the ideas that will change the world seem to come from the States. And I think that is gonna start to get distributed to other countries, you know, China in particular. But that's kinda my sense is that these huge moon shots come from the States. But the rest of the countries have kind of figured out how to live better. And it's hard to say which one is better. I wouldn't say one's better than the other. It's just that they're different.
Matthew: I like walking around a lot more. I like not having a car. So I kind of appreciate, at least in Europe, that quality of life.
Linda: Yeah. I think it also gives very different social interactions. If you're inside your car, I always feel locked up. But when I take a train or a bus, I meet people I know. It has a very different social feeling.
Matthew: Well, Linda, give out your website and tell people how to visit and interact with Cannify.
Linda: So the website is cannify.us. So that is C as in Charlie, A as in Alpha, N as in November, N as in November, I as in India, F as in foxtrot, Y as in Yankee, dot U as in Uniform, S as in Sarah. So cannify.us.
Matthew: Okay, great. Well, Linda, good luck with that. And I encourage everybody, go take the questionnaire and see what cannabis products pop up for them and for their particular desired outcome. And I'm gonna give it a try myself. So thanks, Linda. Really appreciate you coming on the show and educating us.
Linda: Thank you a lot, Matt. This was a fun interview.
Matthew: If you enjoyed the show today, please consider leaving us a review on iTunes, Stitcher, or whatever app you might be using to listen to the show. Every five-star review helps us to bring the best guest to you. Learn more at cannainsider.com/itunes. What are the five disruptive trends that will impact the cannabis industry in the next five years? Find out with your free report at cannainsider.com/trends. Have a suggestion for an awesome guest on CannaInsider? Simply send us an email at firstname.lastname@example.org. We'd love to hear from you. Please do not take any information from CannaInsider or its guests as medical advice. Contact your licensed physician before taking cannabis or using it for medical treatments. Promotional consideration may be provided by select guests, advertisers, or companies features on CannaInsider.
Lastly, the host or guests on CannaInsider may or may not invest in the companies or entrepreneurs profiled on the show. Please consult your licensed financial advisor before making any investment decisions. Final disclosure to see if you're still paying attention. This little whistle jingle you're listening to will get stuck in your head for the rest of the day. Thanks for listening and look for another CannaInsider episode soon. Take care. Bye-bye.
What if cannabis cultivators could use artificial intelligence (AI) to help them automatically identify a problem with their plants before the problem is even visible? Our guest today is Max Unfried chief AI officer for Deepgreen.ai. Max walks us through how AI is being leveraged in the cannabis space for the maximum benefit of growers and business owners.
Get your free cheat sheet “The Five Trends Disrupting The Cannabis Industry” here https://www.cannainsider.com/trends
Matthew: What if cannabis cultivators could use artificial intelligence to help them automatically identify a problem with their plants before the problem even starts? Max Unfried, Chief AI Officer at Deep Green is here to tell us how sophisticated cultivators can leverage AI to help their grow. Max, welcome to CannaInsider.
Max: Thanks for having me, Matt.
Matthew: Give us a sense of geography. Where in the world are you today?
Max: Well, at the moment we're, like, based out of beautiful Boulder in Colorado. So, next to the Rocky Mountains.
Matthew: Okay. And what is Deep Green at a high level?
Max: At a high level, Deep Green is an AI platform that uses computer vision to give plant analytics. And, specifically, we do diagnostics of diseases and pests and detect those on crops and we also do yield estimation.
Matthew: Okay. Can you share a little bit about your background and journey and what were you doing before Deep Green and where you're from and how you got to this point?
Max: So, by trade, I'm a scientist. I studied physics and branched into artificial intelligence at university. After that I did, like, some guest research in Taiwan about, like, detecting facial expressions in humans with the help of computer vision. And then, after that I landed my first job out of university in Vietnam where I worked for a Swiss FinTech start up. And I was building machine learning systems and algorithms to analyze tweets and news, and try to extract insights from them about what the crowd is thinking about certain stocks and help investors in a way make, like, a choice based on those tweets. And that's actually where I met my co-founder and our CTO, Maxine.
Matthew: Okay. Okay. And where are you from originally, Max?
Max: I grew up in a small, small town in the German countryside close to Stuttgart.
Matthew: Okay. That's nice. Cool. And let's dig in here. Can you tell us how most cannabis cultivators are looking for problems with their plants now, and what you're doing differently with Deep Green to help them get a sense of what the problem is and then what's possible with Deep Green?
Max: Of course, I'd love to. So, I mean, everybody who has been, like, in cultivation so far, they see all those plants. Like, thousands of them, right? And, currently, like, cannabis cultivators walk through the rows and inspect each of those plants manually, like two or three times a week, and check if there's, like, any kind of disease or pest or, like, nutrient deficiency. And just imagine how much work it is, like, just checking every plant and every leaf.
Especially, now there is, like, double stacks become more popular that you actually have, like, a stack of cannabis plants above each other. So, you have to move your ladder all the time if you wanna check it properly. And, obviously, cannabis cultivators, they have their hands full, they have, like, other things to do. They cannot spend all the time working through those rows. And that's where Deep Green is coming in.
The problem is with the diseases in plants, they usually start very small and, like, are often hard to capture for the human eye. But they can grow rapidly in a grow room, right? And it can be devastating. And what we do at Deep Green, we help cultivators to monitor their plants more efficiently. What we, in a way, provide is imagine that you have a master grower with super-human vision that has an eye on your plants 24/7. And the way we do that is we put, like, cameras on the ceiling of a grow or we attach them to LED lights and those cameras, simple [inaudible [00:04:15] cameras taking a picture an hour.
This picture is then sent to the cloud and it's analyzed by our artificial intelligence. And if we detect any issue we will send a notification to the grower with the exact information about the room number, the plant, and the issue we detected. So, instead of walking the entire room, the grower can go to this location and check if everything is okay or what is wrong. And if anything is wrong he can just do the next steps to prevent damage.
Matthew: Okay. So, is the camera in the ceiling or on the light, does it, like, auto-focus to what it needs to see and then it just snaps a picture? Is that what happens?
Max: Exactly, it just snaps a picture.
Matthew: Okay. It sends it to the cloud and that's when your algorithm kicks in and starts looking at the pixels and going deep into the pixels, and saying, "Okay. Is there something that matches a pattern I have in my database?" Is that pretty much what's happening?
Matthew: Okay. Okay. That makes sense. What's writing an algorithm like? I mean, this is just a mathematical...I mean, do you get to...is there, like, an open source library of algorithms that gives you a starting point where you can kind of take ingredients and make your own algorithm?
Max: So, I mean, the technology we use is, like, called Deep Learning. And it's, in a way, a technology that brought out the most breakthroughs in AI in the recent years. And, obviously, we're like any other research company, right? I mean, Google, Facebook, they have, like, hundreds of AI scientists that already do a lot of research and provide some of those...the idea of those algorithms. By the end of the day, we code them ourselves. We, obviously, use inspiration of what comes out of the research. But at the end of the day, it's like we're, like, sitting in front of a computer and, like, putting the mathematical equations into code that the computer can understand.
Matthew: Did you see that news headline where Amazon's technology, in kind of a publicity stunt, confused people in Congress for criminals? They wanted to show how that could be misused.
Max: I actually did not see that, but it doesn't seem too far away that people in Congress could be criminals, right?
Matthew: Oh, gosh. You got to host a show, Max. That's great. Well, I'll include that in the show notes so people can see that it was kind of a publicity stunt though, because the...it was kind of big in the news for a couple days. But then Amazon said, "Hey, they didn't have the reliability set to 99% and they didn't do all these things right when they used our facial recognition and so forth." But I could see where there's a potential for abuse at least on the human side in terms of, you know, using it to control people. But, in this case, it seems like it's really super useful. Can you tell us what some of the most common problems in the grow room you find with plants?
Max: So, the largest issues that we find when we speak to cultivators is, like, they have usually powdery mildew, which is like a fungal disease. And it attracts spider mites, which are like some very small insects, and then obviously nutrient deficiencies, because I mean, it's just super hard to get the perfect nutrient combination for every single plant or strain. But the biggest pain point is really powdery mildew, because it can spread rapidly through the air and it's a fungus and fungus like a humid environment. So, they're having probably a really good time in those cannabis cultivations.
Matthew: Yeah. Okay. Right. Right. Right. So, how long does it take after the picture is taken? You take a picture every hour, it goes into the cloud, and how long does it take before you get an e-mail or a text message or whatever the grower that you've detected an issue?
Max: Usually, like, our algorithms they can, like...if we take an image, like, it's processed within four seconds. And then we can directly send it back.
Matthew: Okay. So, it's happening almost instantaneously it sounds like.
Matthew: Okay. And we talked a little bit about how, you know, the human eye is not necessarily trained to see this until it's a problem that's, you know, manifest large enough for us to say, "Holy crap, there's powdery mildew or spider mites." But how much earlier can a camera recognize this with the algorithm that you have?
Max: So, at the moment we're that far that we can, like, recognize the earliest signs that are visible on a leaf. So, still before a big outbreak is on the way and you can still control the damage and prevent it. The good thing, obviously, about computers is if they look at an image they are good at seeing things human eyes cannot see on photos. And we're currently working really on detecting what is invisible to the human eye.
Matthew: Wow. There are so many applications here. It's unbelievable when I start to open my mind to this. And how about coffee, have you ever tried this with coffee?
Max: Well, it's actually quite funny. I mean, when I spent, like, two years in Vietnam, and Vietnam is like the second largest producer of coffee in the world behind Brazil, so I like running and I've been sometimes running, like, through coffee plantations and I was obviously looking at those plants, like, just out of curiosity for agriculture, because in Europe, usually, we don't have coffee plantations. And sometimes I saw something odd, they're like weird yellow spots and, like, some things that could be powdery mildew outside on there.
But I have no idea how big those coffee plantations are affected by that. I mean, it's like an outdoor crop, right? So, they obviously have, like, a different immune system than, like, the plants indoor. But as long as there's a medium to capture images outside, we can use them and analyze them. And honestly, I expect that coffee farmers of the future will use drones to fly over their plantations. Because, I mean, they're massive, right? I mean, you just cannot walk them. You can run several marathons through them and probably still not be done.
Matthew: What type of plants do you think lend themselves to working with Deep Green the most? Do you think cannabis, any others, hemp? I mean, hemp's outside usually, so...I mean, have you thought about hooking this up to a drone or is that not what you're working on right now?
Max: We have thought about it, and it's on our roadmap, but it's probably, like, two years away. Just because, I mean, farmers not adopting drones that quickly yet. But the way we think about it is like that cannabis is, in a way, the black swan of agriculture, right? You have, like, the young people, you have young farmers compared to general ag and they have a quite large affinity to technology. And you also have, like, a mode from big agriculture, right?
Like, John Deer is not gonna move any time soon into cannabis given its legal status. And that actually allows for great innovation that is driven by, like, smaller startups, and use innovation to transfer to general agriculture. So, we had in the mind from the beginning that we develop this technology in the cannabis industry, given that, like, it's a high-value crop and [inaudible [00:11:53], but then move to general agriculture.
And, actually, we moved quicker to general ag than we would have expected. At the moment, we still do mainly cannabis, but we started out our trials with center pivot irrigation systems that are like those large circles that run over cornfields or alfalfa fields. And we mounted cameras on those, and currently we're detecting on corn and alfalfa fields, we detect weeds. And you brought up hemp and the company we're actually working with, with the center pivot irrigation systems, they just sold their first pivots to hemp farmers. So, that is coming. So, we're looking into putting cameras on pivots that run over hemp fields to help analyze what's going on there.
Matthew: So, you say you also recognize weeds for the general ag farmers?
Matthew: And then, once they see that there's a weed there, is there an automated way to remove the weed or are they just like, "Oh, I know there's a weed and I have to go remove it by hand," or what happens?
Max: Obviously, like, removing of it by hand in the alfalfa or cornfield is not scalable, right?
Matthew: Right. That's why it's like. what do I do with that information? I've got a weed, but as long as there's not too many weeds I guess they just look at the picture.
Max: Exactly. That's fine. Obviously, if we have, like, large patches of weed then they probably consider spraying. And that's still good, because they can just spray an area where they know the weeds are instead of, like, laying a carpet of pesticides over the entire field. In a way that saves them money, but it also helps the environment to do, like, in a way, precision agriculture and, like, precision spraying instead of going brute force and, like, just putting chemicals everywhere.
Matthew: Gosh. I could see a future very soon where, you know, there's little automated robots just going through and picking and doing things like this, just general maintenance. That doesn't seem crazy to me at all.
Max: No. I mean, it's getting there. I mean, there are already robots out there that can pick some fruits like strawberries or like apples or just go through and look at the plants and see what's going on, on the fields. I mean, you have, like, robots in cannabis that try to help with the trimming. There's, like, a lot of cool technology coming up in the next few years.
Matthew: Yeah. So, if there's a grower or a business owner that's listening right now, and they're like, "How do I get started with this? I wanna integrate something like this and get notified, you know, before a disease really manifests or a pest causes a problem?" But they're like, "Is this cutting edge, is this bleeding edge? Like, how much learning curve is there?" Can you tell us what would it be like for a business owner or a grower trying to onboard this technology?
Max: So, the first thing would probably be to reach out to us. But, in general, it's like very, very few work for the business owner. Usually, we just come, we put in those cameras, we install them, we need, like, a few sockets where we can plug it in, and then we start automatically taking those images. And the business owner, or like the grower, will be notified of anything is wrong. So, it's, like, not a big barrier to entry. Everybody has a ceiling or, like, usually lights where we can monitor. And yeah, then they're good to go to receive the notifications. And the only thing they have to do is to open the e-mails or the text message to see if anything is wrong.
Matthew: Okay. It'd be really cool to have a way to have this where a security camera tells you if there's an unidentified person in the grow. That would be kind of interesting too, but I guess most grows have so much security now just to get in that I don't know if that's necessary. But it would be nice to know. Do you think that would be pretty easy to make or does that sound difficult?
Max: Compared to what we are trying to do, detecting a person in the room is, like, very easy.
Matthew: Okay. Okay. What do you think? Can you tell us something about someone's mental state, you think, with a Deep Learning algorithm where you could say, "This one matches a profile of being high and wanting to eat Ben & Jerry's ice cream?"
Max: I mean, can you as a human?
Matthew: Not as a human, but, like, is it...I think as a human, sometimes I could, but I mean, is that something you think you could program into an algorithm or does it sound too crazy?
Max: I mean, as a human, you can certainly say if somebody is high, right? If they wanna eat Ben & Jerry's ice cream, that's probably, like, a harder part. But, I mean, given on the facial features you can certainly detect, like, emotions, what they're feeling, what kind of state they're in. And then there's, like, cool stuff coming up with, like, EGs. Like, sensors that measure your brain activity or, like, your brain waves. And, obviously, if you hook together imaging plus brain wave reading you might actually be able to figure out that he really wants to have Ben & Jerry's, because every time he wants Ben & Jerry's, or she, there's some certain part of the brain that's gonna be activated. So, let's see what the future holds.
Matthew: Yeah. Speaking of the future, I mean, I don't know, it seems like in the last five or seven years, technology has just gone on a tear where there's, like, an accelerating acceleration. Like, it used to be where you could kind of see, "Oh, you know, here is another development, but it makes sense that it was a while since the last one." Now, it just seems like it's just absolutely, you know, stage-five "Star Trek" and there's just craziness happening every day. What's your kind of plan to keep iterating this so three to five years from now it'll still be relevant, and still be, you know, top-of-mind for a grower?
Max: So, the way we see this, like adopting our technology, is not a question of if, it's a question of when. AI is disrupting every major industry. Like, it already started. In the next few years, it will only, like, become more and more...it allows for more automation and it found its way into agriculture. And like you mentioned, I mean, these last few years this changed rapidly, right, it's people starting like about self-driving cars and automated weapons and all those things.
Which some of the technology is good, some of that technology is not that good. But the tech we're currently using, some of it didn't exist three, four years ago. Some of it didn't exist, like, even in January this year. So, it's, like, really state of the art and cutting edge. And every few months, like, significant improvements are made on algorithms research and AI research. And that's gonna accelerate more and more, because, like, more and more money is flowing into the AI world, right?
I mean, like, corporations invest heavily in it. All big governments of the world create, like, the AI strategy plans. It's becoming a race and this technology will only become better. And I think it's not gonna become better linearly, but exponentially. Like, so, the algorithms we use today, in 3 years they will not be 3 times better, they will be 30 times better. And, obviously, we can reap the benefits of that and it's gonna be exciting.
Matthew: Oh, yeah. For sure. And what does your family back in Germany think about you being in the cannabis space?
Max: Well, my dad was an entrepreneur. He's, like, in his 60s now. He had his fair amount of experience with cannabis as well. Quite funny, actually. I am a very bad roller. So, when I was actually living in Germany sometimes I actually went down to my dad and asked him if he could roll me a joint. So, he's okay with that. And my little sister as well.
Matthew: Okay. And so, you got to Boulder by way of the Canopy Boulder Accelerator Program. Can you tell us about your experience with that?
Max: Of course. I mean, I'm a scientist by trade, right, so I have barely any business experience. And in that way, like, Canopy is, like, one of those life-changing events if you want. We went there, like, from Vietnam on a very short notice, like, within two weeks we quit our job in Vietnam and moved to Boulder and attended Canopy. And they teach you so much about how to build a business and give you, like, the insights and the knowledge about American cannabis industry, which I didn't know much about.
They bring in all those people from the U.S. and abroad that are, like, in the cannabis industry. Like, business guys, CEOs, investors that you can chat with and you can learn from and pick their brain, which is obviously, like, super helpful when you're, like, just at the beginning of a journey. And they really help you to prepare to pitch investors to...you learn speaking the investor's language, you learn what they wanna see, and how the world of venture capital is actually working.
So, it was, like, super helpful. It's, like, the last year or, like, even through that I just learned so much from different things of business and life that I didn't know even that they existed. And, I mean, Mike and Patrick, they are, like, obviously, through Canopy, our investors, but they also became like mentors and friends during the process. And the great thing is we can always count on them if we need some help or need introduction they are directly there to help us. If we need some mentoring they are there to chat with us. Currently, they actually still let us work a little bit out of their office, which we really appreciate. So, it's, like, a really, really great program to get started in the cannabis industry. And I would definitely do it again.
Matthew: Great. And where are you in the capital raising process?
Max: So, we raised two rounds of capital so far from Canopy and a couple of angel investors. And, you know, as a startup you are, like, always in the fundraising process.
Matthew: Yeah. If there's investors, accredited investors listening and that would like to reach out to you if they're interested, what's the best way to contact you about that?
Max: The best way is probably, like, per e-mail. It's email@example.com. And, yeah...
Matthew: Yeah. And for people that are...people are wondering how to pronounce Max's name, we were talking about this before I hit the record button. And it's, like, unfried chicken. That's how I would describe it. U-N-F-R-I-E-D. So, Max, I want to roll into some personal development questions here to help listeners get a better sense of who you are personally. Is there a book that has had a big impact on your life or way of thinking that you'd like to share with listeners?
Max: Sure. I'm actually, like, an avid reader. And, actually, one book or one group of books I read a few years ago and currently are re-reading is the "Incerto" by Nassim Taleb, which consists of "Fooled by Randomness," "Black Swan," and "Antifragile" and "The Bed of Procrustes." And what really meant for me or helped me, in a way helps you to make smart decisions in a random world full of non-linearities and asymmetries so that you think about randomness and risks.
And, in a way, what I take from it that you wanna make decisions that if things change rapidly and things come that you cannot control, like uncertainty, like probability, that you're not getting crushed by those events. And, certainly, as like an entrepreneur, you have to have, like, an affinity towards risk. But you obviously don't wanna be, like, the sucker of events that can endanger your company or, like, yourself. So, I really appreciate that book in the way of thinking about risk and how you can, in a way, hedge against it.
Matthew: Is there a tool besides Deep Green that you consider vital to your productivity?
Max: For a tech guy, I'm probably not much of a tool guy. I'm actually more, like, the guy who takes away tools to not getting distracted.
Matthew: Ah, focus.
Max: But the focus, actually, like...focus, exactly. And two things come to my mind. One is actually, like, I changed my IDE, my integrated developer environment, to Atom, like by the recommendation of our CTO. And it actually really helps me, it's somehow better or it feels better than the other ones I used before. And it helps just to clean up data quicker and work better. And another thing which I usually do is, like, skipping breakfast. The thing is, you obviously have more time because you don't have, like, to prepare your scrambled eggs and your bacon in the morning. But also it helps me to be more focused, because you just don't have, like, those mood swings based off food until afternoon, which is very nice.
Matthew: Okay. Now, let's just rewind for a second there. What was the first thing you said, because I'm not really familiar with Atom or what you were talking about there? Can you give us a little context of what that means?
Max: Sure. Pretty much, in a way, it's a program on your computer that helps you to write code.
Matthew: Okay. Got it. Got it. It's like a code compiler or something like that?
Max: A compiler is integrated, but it's, in a way...just imagine it a nerdy version of Microsoft Word where you can write code and execute code.
Matthew: Okay. Got it. That makes sense. And as long as, you know, we...I think you might be the...well, maybe the first or second German on the show. I just wanna see if you can translate a couple of words for me.
Max: Of course.
Matthew: What does rumspringa mean?
Max: Rumspringa is just this Amish thing.
Matthew: I wanted to see if you...but what does that literally translate to in German?
Max: Like, a person who jumps around.
Matthew: Who chums around?
Matthew: Okay. So, for people that don't know is that the Amish, before they decide if they wanna continue as an adult in the Amish community, get a period of time where they can go out and drink and smoke and cavort, do what they want. And then they can decide if they wanna live in the world of sin or go back to the Amish. And that period's called rumspringa. And so, I wanted to know what that exactly translates to because I haven't been able to find that at all. And then, one more. What does schadenfreude literally translate into, because I know what it means generally, but what does it literally translate to?
Max: My German is a little bit rusty. How will I translate that? Literally, the translation is like damage happiness, probably.
Max: So, it translates although the meaning is that you're happy about something that happened to someone, but it's a bad thing that happened to them.
Matthew: Yeah. Yeah. So, schadenfreude is kind of like taking pleasure in the misfortune of others and I'm glad to get the literal translation there. So, thanks for that, Max, for that random trivia.
Max: You're welcome. That was a funny random thing. Yeah. I enjoyed it.
Matthew: Well, as we close, tell listeners how they can learn more about Deep Green and connect with you and find out more.
Max: Sure. So, we have a web page, which is www.deepgreen.ai, where you can get more information. Then you can contact me by e-mail at firstname.lastname@example.org. You can find me on LinkedIn at Maximilian Unfried or if you are gonna be for the MJ Biz Con in Toronto in mid-August, we're gonna be around there as well.
Matthew: Okay. Max, thanks so much for coming on the show. Good luck with everything, and keep us updated.
Max: Thank you, Matt. I really appreciate it. That was, like, a really joyful talk.
Matthew: If you enjoyed the show today, please consider leaving us a review on iTunes, Stitcher, or whatever app you might be using to listen to the show. Every five-star review helps us to bring the best guests to you. Learn more at cannainsider.com/itunes. What are the five disruptive trends that will impact the cannabis industry in the next five years? Find out with your free report at cannainsider.com/trends. Have a suggestion for an awesome guest on CannaInsider? Simply send us an e-mail at email@example.com. We'd love to hear from you. Please do not take any information from CannaInsider or its guests as medical advice. Contact your licensed physician before taking cannabis or using it for medical treatments.
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Torsten Kuenzlen is CEO of Sundial Growers in Canada. Torsten’s background is the alcohol industry, and he has been very outspoken saying that cannabis is going to outgrow alcohol soon. Learn why and how he thinks this will play out and why the cannabis industry is poised for paradigm shifting expansion.
– Torsten’s background in the alcohol and soft drink industry
– Why Torsten left the alcohol industry
– Bringing best practices from the alcohol industry
– Why measuring your grow in square feet makes no sense
– Why brand matters and how to create a great brand
When cannabis prohibition initially started ending, many people said, one day cannabis could be as big as alcohol. Today that is no longer a conjecture, as tectonic shifts are happening in alcohol and cannabis industry, especially in Canada and soon the rest of the world. Here to tell us about it is Torsten Kuenzlen, a former alcohol executive and CEO of Sundial Growers. Torsten, welcome to CannaInsider.
Torsten: Thank you so much. Glad to be with you today.
Matthew: Give us a sense of geography. Where are you in the world?
Torsten: I'm actually in a small northern Moroccan fishing village called Cabo Negro and I apologize in advance for any audio quality issues that might bring with it.
Matthew: Oh, no problem. No problem. Tell us at a high level, what is Sundial Growers?
Torsten: Sundial Growers is one of the largest cannabis companies in the world actually these days. We're based in Calgary, Canada, and with Tilray having gone public last week, I think we're now the largest private licensed producer in Canada.
Matthew: Okay. Can you tell us a little bit about your background and journey and how you came to get involved with Sundial and what you were doing in the alcohol industry prior?
Torsten: Sure, so I spent 25 years in the fast moving consumer goods industry specifically with Coca-Cola and Molson Coors. I was in senior management roles around the world, worked and lived in North America and Asia and in Africa and now I've come to cannabis here really through alcohol because the distribution system through the provincial boards and actually many of the retailers, it's very, very similar in cannabis as it is to alcohol. So the Molson Coors experience in Canada has been particularly helpful.
Matthew: Okay. And having been both in the alcohol industry and now in the cannabis industry, at a very high level, can you orient us on how you think about where we're at right now in terms of where cannabis is at and where alcohol's at and how the alcohol industry might be reacting or investing or getting involved with the cannabis industry?
Torsten: Yeah, of course. I think in general, I see cannabis and alcohol actually being in a very similar stage in terms of development and if you look at the consumption in many geographies and many segments, consumption of cannabis and alcohol are actually already very similar. The obvious difference is that alcohol is largely legal around the world where cannabis is just beginning that journey. So in many ways, I think the parallels are clearly there and I think what we're going to see here in the next decade or two in cannabis is going to eclipse the pace with which alcohol has developed over the last 80 years, especially since prohibition in North America.
Matthew: Okay. And, as you entered the cannabis industry, you kind of had some best practices in mind. Just the way things were done in the alcohol industry. I mean anybody that's been to a brewery or something knows how automated all is. How do you think about bringing consistency and automation and brand building from the alcohol industry over to cannabis?
Torsten: I think that's ultimately going to be the competitive advantage of the largest brands and companies in the cannabis industry. There's no doubt that cannabis, like alcohol, really like any fast-moving consumer goods industry, is based in a brand promise. And that brand promise starts really with a superior quality product. I think that's something so far from what I see in the industry is being a bit overlooked. I think there's a bit of a danger that many of our competitors are going to go in with a non-advantaged commodity product and we're going to take a different route. At Sundial we strongly believe that the overall brand promise starts with a highly differentiated quality product and that that needs to be paid off in every step that the consumers and the retailers touch our own brand and consistency and quality stand out. One of the reasons why we at Sundial are building what's the largest modular purpose built cannabis facility in the world, we'll be able to produce ultimately over a 100 million grams of highest quality cannabis. And we really think that that sets us apart in being able to formulate and then deliver on very differentiated brand promises to cannabis consumers.
Matthew: Okay. So you think cannabis has an edge over alcohol because it's not a liquid. Can you talk about that a little bit?
Torsten: Yeah. When you think about which choices do you have to consume alcohol, it's liquid, liquid or liquid. And in the fast-moving cannabis industry, it starts with combustibles and that probably here in the first year in Canada will probably be 80, 85% of how consumers can consume it. But then that's gonna rapidly evolve. So in three to five years, we believe it's going to be a third combustible, a third concentrates, and a third edibles and drinkables. So in that sense alone, cannabis has an advantage because it can be consumed in so many different ways. Whereas in alcohol, there's only one form and that's drinking it at this point.
Matthew: Okay. And how long do you think it will take for those three categories you just mentioned to eclipse alcohol in terms of revenue in Canada?
Torsten: In Canada, It'll be interesting. I'm sure it's going to be within the decade. I wouldn't be surprised if it's actually within the next five years. So as we look at the trends and the demographics and how the age profiles are moving and reacting, we think it's gonna be fairly quickly. I think there is the famous example in Aspen in Colorado where within four years, in 2017, cannabis actually outsold total alcohol, so that's beer, wine and spirits combined on a revenue basis. So I'm pretty confident that it's not going to be too long before cannabis is gonna be at least as big as alcohol.
Matthew: Yeah. How do you see the alcohol industry responding to this threat or opportunity?
Torsten: It's interesting. We've obviously seen some of the big alcohol players already respond and many others looking at the opportunity. What is interesting for me coming from the beverage world is not surprisingly beverage companies respond with cannabis as a beverage and I personally think that that's gonna be a bit short-sighted. I think the great versatility of cannabis, of being able to consume it in different formats is something that sets it apart from many other product categories. So, therefore, I think the alcohol companies, or maybe beverage companies in general that only see cannabis as the liquid, are gonna have a hard time building a brand that really is going to spread itself against the different formats. So what I mean by that is, one day the consumer might want to eat a chocolate to consume the cannabis, on another day, they might want to smoke it. On a third day they might want to use oil or an infusion. So I think that versatility, if the beverage companies are not careful that they're at full linear, is something that they might miss out on.
Matthew: Okay. And we talked a little bit about brand, but in the alcohol world and the soft drink world, there's more opportunities to advertise. How do you go about getting in front of prospective clients or customers and building that brand? It seems a little bit more of a challenge compared to the other industries you've been in.
Torsten: For sure it's more challenging, but at the same time it's, of course, a great opportunity as well. So we think that the regulatory environment is gonna start off very tight and that's probably the right thing to do. And the final regulations have actually not fully been released so it's still evolving, but we will clearly look at all opportunities that present themselves. I think the line between education and marketing needs to be carefully considered and that's a big opportunity for the industry as a whole, but also the major players. Because as consumers that might even be new to the category enter the category first time, there's a big need for them to be educated about the differences between different products, how to consume them and to make always sure that all consumption experiences are positive experiences. So we believe that in store, in partnership with our retailers and the provincial boards we'll have a great opportunity to tell the story and to educate the consumers to the difference between the now legal alternatives that they have versus what they might have experienced in the dark and the gray and black market before.
Matthew: Okay. Can you tell us a little bit about your products? Calm, Ease, Flow, Lift and Spark. What's important to know here?
Torsten: What's important I think in general for the industry is that we need to be careful not to get stuck in the past and that we speak a language of THC and CBD and the strain names that are off-putting and non-self-explanatory to consumers. And that we really enter a new realm in the cannabis industry where we're talking about the benefits that consumers could derive from the product and then we have the education so consumers understand which of the cannabis products in which format might be best suited for their specific needs. So our five brands basis are really built around need states and motivations and therefore underneath each of those need states are more detailed granular spaces if you want. So if you take a brand like Calm. Under Calm, they will be subspaces that might be more for consumers that are looking to be less anxious and are looking for a product that might help them in that regard. There might be other consumers that are really looking for help with sleeping better. So I think the five brand spaces as we've defined them today, are really just opening spots to tell stories and educate consumers so they can make educated choices.
Matthew: So even though you're in Morocco right now, you're based in Canada and that's where Sundial Growers is. Constellation brands which many people would probably recognize as being the parent company of Corona beer invested in a Canadian cannabis company, Canopy Growth. And recently they said that investment has already paid off to the tune of $700 million. I am, I think that's on paper. What do you think about Constellation's strategy here? Are investments in cannabis companies enough for these big alcohol conglomerates?
Torsten: I think Constellation was obviously very smart. They were the first large player to go into aggressively. And by buying a large stake of Canopy and being part of the increased share value of the company, they've been able to participate in those gains. I think more importantly though, what they have is they have access to an industry that they didn't understand and through partnerships with cannabis companies, I think alcohol companies and by the way completely other vectors, pharmaceutical companies and a non-alcoholic beverage companies, cosmesceutical companies. I think all of them have an opportunity to buy themselves in or create partnerships in other ways with the leading cannabis companies to understand this new industry and then come up with product and solutions that create whole new markets that expand for them into additional opportunities and leverage the know-how that the cannabis companies are building.
Matthew: Okay. Now, this is one thing that I think about a lot in terms of the cannabis companies in Canada. We've talked about brand and the reason I keep on bringing it up is that essentially the LPs, or licensed producers, to protect their profit margin over time will need to have a brand that resonates and otherwise it's just gonna be a race to the bottom on price and people will just be comparing on price and no one wants that if you're the cultivator. So you're looking for something and that's like a loyalty of a Coca-Cola or a Budweiser. I mean, I don't think that exists yet. Is there a brand that people are asking for or it's done through the mail still in Canada, but I mean, where are we on that journey? I mean, how does one even achieve that because you're getting the cannabis through the mail. I know there's dispensaries coming soon, but I just don't see the bridge on how that's going to happen right now. That probably can only happen once the dispensaries open up or if it's word of mouth when people make their decisions online before they order. Tell me what do you think I'm missing there?
Torsten: That's a great question, Matthew. I really think we're just out of the starting blocks of what's going to be a marathon. We literally haven't even passed the 100-meter mark, especially as it comes to brand building. You mentioned examples, Coca-Cola, Budweiser, Absolut, [inaudible 00:13:11]. They are often great brands, and when you close your eyes for one second and then you think forward 10, maybe 20 years, what do consumers really want? They want to have a consistent brand experience and they want to have that not only in every city in the country that they might be in but also in other cities that they go to. That's probably nowhere more true than for cannabis, so I have no doubt that 10, 20 years from now there will be brands, hopefully Sundial being one of them, that will be like the Marlboro and the Budweiser. So as consumers transcend countries and continents, they can always go to the brand that they trust. So how do we build those brands? I really go back to the point of it all has to start with a superior product.
If we end up in a situation where the consumers can tell the difference between a really bad cannabis and really good cannabis, then I think will be a struggle for the industry. But we at Sundial are doing everything we can to make sure from the look, the smell to the consumption experience and the taste and the aftertaste that all of those things are optimized so that the consumers have a great experience. I believe the way that brands are going to be built as the industry really opens up in Canada on October 17th, is that consumers that have consumed will go to a dispensary or they might order online, five, six, seven different brands and they might just order a gram and they're going to compare them all and they're going to try them. They're also going to compare them to what they might have used before. And ultimately I am convinced that consumers are going to be willing to pay a premium for legal over an illegal product and more importantly, for great product over a mediocre or bad product. So I think for the cannabis industry in the next years, it will be absolutely essential to ensure that every consumption experience will be a superior experience and that the consumers can tell the difference between the non brands, the commodities strains, and those brands that are going to be the Coca-Colas and Budweisers of the future.
Matthew: It's a funny thing because I remember the Pepsi Challenge back in the day where consumers were blindfolded and John Scully, who later became CEO of Apple after Steve Jobs started this and he blindfolded people and said, "Hey, you know, take a sip of this drink and this drink and which one do you like better." And most people said Pepsi yet Coke had much more market share and still does. So there's something about the resonance of a brand we're already familiar with. It's like there's a tremendous gravity or inertia to the brand that gets there first and just so cements that product category in the mind. I mean, I know that Pepsi did take some market share from Coke during that Pepsi Challenge. And people blindfolded I think still think it tastes a little bit better. But they just don't want to... They're just so loyal. When you think about that Pepsi Challenge and then you know, think about the cannabis industry, is there any lessons to be learned there?
Torsten: I think that's actually a great comparison Matthew because what happened in the Pepsi Challenge was that two very well established brands really tried to change the tone and to be fair, it worked for Pepsi. Now I will say Pepsi did cheat a bit, so the product that they used for Coke was a bit warmer and a little flatter, whereas the Pepsi was very fresh out of a glass bottle. So I think there was a little bit of tinkering going on to make sure that the results went Pepsi's way.
Torsten: But in a new industry like ours, I think that's why I am so convinced that product is going to be the great differentiator in the beginning that's gonna drive brand loyalty because that brand awareness does not exist.
And we asked consumers across Canada or the world for brands, they can't play back any brands literally, it's a white canvas. So the opportunity for us to clearly define a differentiated brand promise with the delay that you mentioned earlier and then ensuring that the consumers get exactly what it is that they are hoping to get and that that is better than anything that they might be able to get from other brands. I think it's gonna be a tremendous opportunity for us to get a foot up on the competition.
Matthew: Okay. One thing that you kind of challenged people to think about is to stop talking about the size of a grow in terms of square feet and that makes a lot of sense. Maybe, how do you talk about the productive capabilities of a grow if you don't use the square footage?
Torsten: No, I think the only thing that really matters is the yield, the amount of product that you can produce and if you are able to produce more product on a smaller square foot basis, then obviously you know the yield is the important metric. There are obviously new growth trends developing, vertical grow, multiple tier grow, so maybe the square foot is going to be replaced by the cubic foot. But I think in addition to quantity, when you really want to understand the potential of different licensed producers in cannabis companies around the world, you would be amiss to not mention quality. It's easy to produce a lot of bad cannabis, it's somewhat harder to produce a little bit of really good cannabis. It's really hard to produce a large quantity of highest quality cannabis. So what we are attempting to do at Sundial is really have the most premium cannabis and have better at scale and I think that will set us apart from many of the other cannabis companies that exist today.
Matthew: What do you think the optimal growing environment does look like? I mean, you mentioned cubic that talks about going vertically. Are you considering modular grows, purpose-built grows? What's your kind of vision for how it will look for you?
Torsten: We are experiencing clearly with not just the provincial boards, but also the retailers and the consumers, that they are beginning to differentiate the licensed producers, the cannabis companies, depending on how they grow. We do know that that a modular purpose-built facility, fully indoor, no exposure to light, it's going to produce the highest quality cannabis and then comes to details like the quality of the irrigation system, the nutrient mixes, how good your recipes is, the quality of your growers to really curate those different strains that you either have or develop over time as we continue to breed better strains. It's a combination of those things that I think are going to make the biggest difference and deliver those superior products.
Matthew: Okay, and then as a CEO, how do you balance short term, medium term, and long-term goals to ensure you're not wasting your time, but you're also not being short-sighted and focusing on the things that really matter?
Torsten: Matt, that's another fantastic question. Of course, in the short term, all of us in Canada are focused, fixated on October the 17th, which is the day that it's gonna become legal for adult use cannabis in Canada. At that point, as many of us as possible want to get as much product out there as possible, but we all want to be 100% sure at Sundial that that first product delivers against the brand promise that we're going to make. So we are keeping an eye on the near term. Obviously also for financial purposes as we have a burn rate until we get to revenue and profit, but we're going to be really cautious in putting our brand name on product until we're 100% sure that's gonna deliver against the promise. Ultimately, the Coca-Colas and maybe the Budweisers and the Absolut Vodkas, they never took the shortcut on quality and neither will we, so it will be a long-term game. I think the biggest LPs almost over the hump here with three months away from being revenue and profit generating and then I know that Sundial will take the long-term view, always do the right thing for the brand, never compromise and therefore ensure that we consistently deliver a superior cannabis experience.
Matthew: Torsten, I like to ask some personal development questions to help listeners get a better sense of who you are. With that, is there a book that's had a big impact on your life or way of thinking that you'd like to share?
Torsten: One book that I keep rereading every time I take on a new challenge, it's called "The First 90 Days." And "The First 90 Days" is really set up as you change roles or change companies or maybe both that you reground yourself and really stay open to learning a new industry. And it's been quite humbling for me to enter the cannabis industry that I literally knew nothing about when I started working here in the first quarter. So I've been patient with myself and I encourage everyone that makes the transition into cannabis or really from any industry in any other industry or a big change in responsibilities to read that book and just follow some of the guidelines and be conscious with what we do because nowhere more than in a new industry I think is it dangerous to come in and think we know because we've been in Fortune 500 companies, we've seen similar issues around the world. It was really important for me to get grounded and to speak to our growers and to speak to industry experts and to listen to the provincial boards and the retailers and the competitors in the way that they were framing it up to then take my time in the first 90 days to figure out what of what exists will be helpful and I should embrace and at the same time what might be the areas to challenge so that we at Sundial have an opportunity to take cannabis to a new level and differentiate us from our competitors.
Matthew: And what kind of fish are you going after there in Morocco?
Torsten: Unfortunately very small ones so far. So this morning I was out with my son, it's his 15th birthday today, and the biggest one we call it wouldn't make it even into an appetizer, so we're still gonna go back out and try and catch that big one. But the change is the challenge of course.
Matthew: Yeah. Well, at least in Canada there's some big fish to be caught when you get back.
Torsten: We will try and put our best fisherman on it and get the boats out there and we're sure we're going to pull some big ones onto our boats.
Matthew: Well, Torsten, thanks for coming on the show with us. Tell our listeners how they can find Sundial Growers and find your product and connect with you online.
Torsten: You can find us at sundialgrowers.com. Go to our website and then if you have any questions, there's multiple opportunities and contacts there to get in touch with us. We'd love to hear from you. Always open to ideas. Your listeners are a very educated audience, so all feedback is always welcome now and in the future as you'll be able to enjoy our products when they come to market.
Matthew: Well thanks Torsten. Good luck fishing and good luck with adult use or recreational use in Canada and we look forward to hearing from you in the future.
Torsten: Thank you very much, Matt. All the best to you and your listeners.
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In this wide-ranging interview, Alan and Matthew Kind discuss some of the most noteworthy IPOs in the cannabis space, how the US and Canada public markets differ, and how the cannabis stock landscape has changed and is changing.
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Cannabis stocks are a hot topic, particularly in Canada, but now also on U.S. exchanges with the IPO of Tilray. Here to tell us about cannabis stock investment is returning guest, Alan Brochstein of 420 Investor. Alan is a chartered financial analyst and a contributor to "Seeking Alpha". Alan, welcome back to CannaInsider.
Alan: Hey, it's great to be back. Always good to talk to you.
Matthew: Give us a sense of geography. Where are you in the world today?
Alan: I am smacked dab in the middle of Houston, Texas.
Matthew: All right. And I'm in Edinburgh, Scotland.
Matthew: So, you've been on the show a few times over the years, and you shared a lot about cannabis investing. But how has cannabis stock investing changed since the first time you were on four years ago? And then you were on kind of a couple years ago, and now you're here again, it seems like it's really exploded recently. But what's kind of your 20,000-foot view to kind of give people a sense of where we were and where are we now?
Alan: Wow. So, four years ago I was the sheriff of the Wild West, Matt, and it was...you know, I was very hesitant to tell anybody they should invest. It was really a dangerous environment, all the stocks, you know, weren't that many, were on the OTC. And then, you know, that was a problem in and of itself, but it was also just the real cannabis industry wasn't reflected in the publicly traded market at that time.
And even a couple years ago, there were some things going on that were interesting, and I was one of the early adopters of a bullish thesis on Canada, and we probably talked about that a couple years ago because in October of '15 is when Justin Trudeau was elected. So if it was any time after that, that thesis became very prominent. But I have to say, and is not just exactly recently, I can walk you through kind of when things really changed. But as we sit today, it is radically different. But let's go back just a little bit.
So, I can recall speaking at the Houston CFA Society in April a year ago. So, you know, about...what would that be? About 16 months ago. And I told them, I said, "I never would have dreamed of standing up here and speaking to this audience, really until very recently." And I think what was going on in my mind at that time was, everybody was aware of the bullish thesis in Canada, but finally the dollars were showing up, and there were these very large capital raises that started taking place in early 2017 in Canada. And I told my audience at the Houston CFA Society, that this was a global industry, that there were a lot of different things that were going to unfold, but to keep their eyes on Canada because that was really the center of the action.
And so if you fast-forward from that presentation which was in late April just six months, we have what I think has probably been the most important event in terms of the development of the global cannabis industry. And that was the cross-border, cross-industry investment made by Constellation Brands into Canopy Growth. And that really lit a fire under the investors, and... So we've seen a lot happen since then. And, you know, it goes much deeper than that, but I think that was the big change. And we can talk more about how things have changed, but the difference is we are now seeing the U.S. cannabis industry finally benefiting from all this capital raising.
Matthew: So Constellation Brands is a huge alcohol conglomerate that...I can't remember their flagship brand. I think it's Corona maybe, but...
Alan: That's one of them, yeah. They have many...
Matthew: Yeah, they have others, but yeah, they're huge. And so they...
Alan: Wine, beer, yeah...
Matthew: They invested in one of the Canadian cannabis companies, and that turned out to be a great investment. It didn't...
Alan: Yeah, it did turn out to be a great investment, but I don't think they were looking at it as just a near-term financial investment. I mean, it's really about... So, if you think about who are really the industries that could be impacted by the positive developments of the cannabis space, two of them really come to mind. And that's the pharmaceutical industry and then the alcohol industry. These are pure substitutions. Some people would throw the tobacco industry in there, and I don't really think that the tobacco industry...it's not a substitution thing.
I think that's more of like, this is really a crappy industry where there are some parallels, and maybe they can get into the industry. It's not the exact same thing. And so I think for Constellation Brands, who had announced a whole year earlier that they were looking at the space, it was a very thoughtful process where they really decided to go with what they perceive to be the best of breed. And it was a deal that was structured not just as an investment, but as a strategic alliance to develop a product that doesn't yet exist.
Matthew: That's pretty crazy. Okay. It's hard for people...the landscape is so different because in Canada it's these massive, massive companies, the LPs, and in the U.S. everything is totally the opposite where it's fragmented. So it's kind of hard for people to get their mind around, and it's also federally legal in Canada. You can raise capital, have a bank account, so it's different in all these ways. But you were saying that the U.S. is starting to get some benefit on that. I wanna go into that in a little more detail later. But talk a little bit if you would about mergers and acquisitions and what we're seeing there and what your general sense of that is.
Alan: This has been a big theme as well, consolidation. And in Canada today there are... Actually yesterday it was at 40, today it's 41 companies that are trading publicly, that are either licensed producers, and that's all they do, or they're a holding company that has majority of...you know, that... Basically, there's 2 companies that are holding companies, and 39 that are just LPs. But even some of those LPs are looking more like holding companies.
In any event, that's a lot of public companies for a country of 38 million, you know, with a nascent cannabis industry for consumers and kind of a maturing one for medical. And so my thesis a long time ago was that they would give out too many licenses, and there would be...it would be really difficult for many of the smaller companies to even survive. And so the way it's played out, Canopy Growth was the first consolidator, and they bought Bedrocan Cannabis in late 2015, and that was...you know, it was a big deal at the time. Now you wouldn't think of it as a big deal in terms of market cap, and it was a deal that ultimately didn't really work.
Then Canopy came back and bought Mettrum at the beginning of 2017, but it was really... And when my thesis really took off was after that Constellation deal. Because, you know, what were the other large players going to do, now that Canopy had this big cash infusion and strategic partnership? So the thinking was that there'd be consolidation within the industry, consolidation of more cross-border, cross-industry type of things, and yes, that's been the answer. And there's also now some of these smaller companies are partnering, and there have been two recent examples of that where two smaller publicly traded companies that don't really have substantial sales yet used excess cash that had been raised through equity sales to purchase...and they also used stock. But to purchase private LPs of a similar size actually.
So, we've seen Aurora Cannabis, which is now actually the largest in terms of sales, do a consolidation in the industry where they bought essentially what was number three and number four behind them. So, two, three, and four all merged, and so now bigger than number one. It's really fascinating. And we also saw, Matt, a...it's not a very well-known company, but it's a global tobacco player called Alliance One International, buy control of a smaller licensed producer in Canada, and then...I'm trying to think. There's probably been some more. But I think you get the picture, there's a lot of consolidation.
In the United States, it's crazy. Because like you said earlier, I'm gonna disagree with something you said about there not being huge companies. There are some huge companies. Huge. But I think where you're 100% correct is because of the fragmentation, they're not able to scale necessarily the way a Canadian company might from one facility. So, you basically have these holding companies in United States that are very large, and, you know, one of them recently...Acreage Holdings, and it's a small world category.
I've known their CEO for more than half of my life. It's kind of funny. I went on a trip with him to Myrtle Beach 30 years ago or something. So, it's really funny the way sometimes your paths can cross in life. But Acreage has operations in I think now 13 states. And they raised...they've never revealed their financials publicly, but this part is public. They just raised $119 million as a private company. That's not what they're valued at, that's how much they raised, $119 million. I say it's crazy, it's really not crazy. But when you and I were talking four years ago about this, I never would have imagined, right? So, it's major leagues now.
Matthew: It is major leagues. Which brings us to Tilray. Can you talk about that a little bit?
Alan: Yeah, sure. So, for those in your audience that aren't familiar, Tilray is one of the largest LPs, and it was private. I think most people knew it was a large LP. And that was confirmed when the documents came out, and in fact, I think it's...I wanna say $7 million-a-quarter run rate. It puts them I think at number four right now. And Tilray was 100% owned by Privateer until they sold some outside equity in it earlier this year. And the company has had a very scientific approach. They checked a lot of the boxes in terms of they're international, they have a high amount of their sales in extracts rather than flower.
And the other box that they checked was that they had different geographical and types of production. So, they had their flagship out in British Columbia that's an indoor facility, and then they also have an Ontario greenhouse that's in development. So really a well-positioned company that's been operating for a long time. I mean, they did something...I think it was kind of smart. It's definitely interesting. And that is, rather than list in Canada, they decided to go straight to the NASDAQ, and not even list in Canada. Which is really kind of odd.
We have seen the leading companies, and we're gonna see more of this in Canada go from the... Look, when we were talking about this four years ago, if we talked about it, they were all on the CSE or the TSX Venture, all the companies in Canada. But more recently they have worked...some of them have worked their way up to the Toronto Stock Exchange. But the Toronto Stock Exchange is not held...it's not held as highly as the New York Stock Exchange or the NASDAQ globally.
And so Tilray decided to kind of I think one up everybody by just going to the NASDAQ. And so the IPO was done at a price that I told my subscribers at 420 Investor I thought it was a fair price. Which just goes to tell you I don't know what I'm talking about because it doubled right after. So, I didn't see that coming. But just so everybody understands, the only shares of Tilray that could or that still can trade, are the IPO shares. So is a very small amount of the total number of shares outstanding for the company. So, you know, it's artificial, in my opinion. And so there was a lot of interest. And so I say it was smart because, you know, I think it helped them to get a lot of...a lot wider audience actually.
Matthew: So you think there's a bit of a prestige premium going right to one of the bigger exchanges because there's more liquidity in international exposure perhaps?
Alan: Yeah. Well, just to be real clear, yes, what you just said. But really what I'm getting at is, I think that... Look, there's lot of investors in the United States that have been either blind to this whole cannabis theme, or maybe burned by it in the past and burned by the OTC scams and what have you. But probably a larger pool is really just waking up to this. And so the fact that it trades on the NASDAQ for traders is just awesome. You get like pre-market trading, after-hours trading, all the stuff. So traders like it, investors like it because, like you said, it is prestigious.
So, I think what happened was that they really got an expanded audience. I mean, at this point in time the only companies that trade on the NASDAQ and the New York Stock Exchange that are competitors of Tilray, are Canopy Growth and Cronos Group. There will be more very shortly, but that's it for right now. And so I think you can look at how Cronos performed when it moved to its additional listing on the NASDAQ, they were the first, and then you can look at Canopy Growth, how it performed when they moved their listing or...they didn't move it, I'm sorry. When they added the New York Stock Exchange listing, you know, people saw gains. And so there's a little bit of a pattern there. So, I think people were really excited that this opportunity was there, and it's a scarce...but it's just three companies, it's pretty scarce still.
Matthew: Let's talk about valuations because that's on everybody's mind. Are they reasonable in general? How are they different in Canada? What are your general thoughts about valuations?
Alan: Well, first I should say I'm smart enough to be able to say a valuation is high or not, I'm not smart enough to say what that means for the stock. For instance, Amazon I've always thought was a high valuation. I think most CFAs would have agreed with that, but it just goes up. And I have a lot of examples like that. So, I always caution people, be aware of valuation. It matters more when the stock is going down, than when it's going up.
So, I think number one, I've been saying this for a long time, that if you just take like a dollar of revenue generated or even expected to be generated, depending on how you're looking at it, in Canada or United States from the cannabis industry, it's valued a lot more highly in Canada. And so there's a lot of reasons for that. There's more of a global opportunity for Canada, it's not federally illegal. There's another really good reason, and that is, oh yeah, 280E taxation. So, there's some issues that suggest that it should be higher.
But what I was saying for a long time was it's just way too much higher. You could look at companies generating more revenue, and they're trading at a tiny fraction of the valuation of the Canadians. But these things can persist for a long time until they stop persisting. And just the way investors work, they wanna see signs that that valuation gap is starting to close.
And back in April when Donald Trump and Cory Gardner, President Trump and Senator Gardner came to an apparent agreement, you know, we haven't seen it in writing, right? But when that was announced, and when there was some follow-through a couple months later, that really changed everything. And all of a sudden we saw the confidence of investors and operators in the industry just skyrocket. And the confidence, it could be overly optimistic, but I don't...I think it's just probably good enough. If Jeff Sessions isn't gonna win, then we're all gonna win. We don't necessarily have to have all the reforms take place that people are anticipating, we just have to have an environment where they're not gonna make things worse in my opinion.
So, that started a cascading effect of the stocks going up, money coming in, and so we've seen that valuation gap close. There's some really good examples of kind of leading U.S.-focused companies that have seen their share prices go up since April, while the Canadian stock prices, many of them have gone down. So, when investors see that going on, and they feel like they have the technicals behind their back as well as that valuation story, you know, maybe it happens.
Matthew: Well, let's talk about two recent IPOs and kind of compare and contrast them. First, MedMen and then Green Thumb Industries or GTI. What do you think of those two? And how do you think about a high level, and what's important to know there?
Alan: So, this was really the first...these were the first two examples of kind of that post Trump-Gardner and taking advantage of the new optimism. And so we had already seen some of the stocks performing better, and then those guys...GTI was very quiet about it. MedMen everybody knew was going public because they had talked about it publicly. But they both came in about the same time, first MedMen. And, you know, that company has revenue. It's not as substantial as what they tell you they're going to have, which is very substantial, but they do have the revenue.
And it's a very well-known company, they're very promotional, people know who they are. And I think they're smart. They have a flagship in New York, and I think most people say, "Why do you need to have such a fancy store on..." I think it's on 5th Avenue. I forgot exactly where it is. But, you know, very expensive real estate in Manhattan. And it's because it's a marketing tool, for not necessarily just their stock, but for their brand, let's call it. And not necessarily to sell cannabis to people in New York City. At least for now. In the future, yes.
And so that was a very expensive valuation. So you asked about these valuations, but that one was not in line with my comments about the U.S. being much cheaper. That was not, I mean, clearly. The company had a few issues with investors, I think, and they ended up addressing them. The stock didn't perform very well at first, and then it actually moved to a new high price and now it's pulled back. But I personally find it to be expensive still, but I'm optimistic that it can grow into that valuation perhaps. And they definitely are very aggressive, and, you know, that's gonna either benefit them or hurt them. We'll see how that pans out.
GTI on the other hand, I think they rode the coattails of MedMen because MedMen came out with that very aggressive valuation. GTI looked downright reasonable. A lot higher revenue, and a lot lower valuation. A lot. And so just for raw numbers, I think we're talking about two-and-a-half billion in Canada versus one billion. So it's like 40% of the valuation of MedMen, but with higher revenue. And it was kind of interesting. And GTI, out of the Midwest, not as promotional as MedMen. Probably a better business quite frankly, but anyway investors loved that one too, and that one did very well. And it ended up doubling, roughly, and then they sold more stock and then now it's come back down pretty hard.
Matthew: There's a psychology to it there because you want...on the day of your IPO you wanna see a pop, you wanna have there be excitement around it. If it's over-valued, you don't wanna see it go down, so you wanna see it go up. So, it's kind of tricky getting that number right.
Alan: I think. One of the criticisms I've had for several companies that have... And you know, most of these aren't IPOs by the way. And to be real clear, neither of those was true IPOs. An IPO is when you have a company that's never traded publicly. Most of these companies including those two were reverse mergers, is what we call them in United States. They're called RTOs in Canada. But to your point, yes. And I think some companies that have done IPOs, or that have done...like, even Tilray, and it worked for them. But they had just sold stock in a much lower level not that long ago in a private placement before they went public.
And I kind of liked that they did that, Matt, because I think it's smart to sell your stock a little bit cheap. You want your investors to be really happy. They'll be happy to pay a higher price in the future if they've already made some money. And other people will see it and they'll see a nice stock chart. I think one of the worst things a company can do is get really greedy on their pricing, and then their performance as a company may be great but their stock could be going down because they got too greedy. So, it's a good point you raise.
Matthew: Yeah, there is a lot to it. I mean, I feel for the people involved trying to do that and trying to figure it out, like how do you arrive at the perfect price. And I think a reverse merger, maybe that...for people that aren't familiar, can you just talk a little bit more about how...you know, the specifics of what that means, just so people can visualize? People aren't familiar with that term.
Alan: First of all, I have to confess. I didn't know anything about this until I started studying the cannabis space. It's not something that's very common in...like among real companies. It's really something that a lot of fake companies do. But it's been the path for many real companies because like in the United States there is...it's very hard to do a real IPO. There have been a few companies that have done it, but let's see if I can simplify it.
So, a lot of times there's a stock that trades, and there's no business operations. But they have...some people will call it a shell, that may not be the right term to use. As a matter of fact, that can be a very wrong term. So I'm not...I don't get into the intricacies, but just to explain how it works, there's a company that has this stock that's outstanding, and they agree to acquire another company. But it's really the company they're acquiring, it's gonna be the surviving company. That's what a reverse merger is.
And so in the United States, I mean, I can remember Can Labs. They had to give away 50% of their company to get this done. It was one of the stupidest things I've ever seen in the financial world. But in Canada where a lot more of these take place... And that was extreme by the way, that's not even how bad it is usually in the United States. But in Canada, you know, I think it's a lot more reasonable. I've seen deals get done at like 3% to 5%.
And so basically it's a way to fast track going public, as opposed to going through the process of filing a prospectus with the SEC in the United States or with the Ontario Securities Commission or whatever province it might be up in Canada to go public. So, as an investor...you know, there's examples of these RTOs working out really well. And everybody should remember, that's how Canopy Growth went public, that's how Aurora went public, it's how Aphria went public. But we have seen some direct IPOs more recently. And I personally think that's a better way, but I think it can...it's more difficult and it takes more time.
Matthew: You know, we're introducing that, what a reverse merger is and talking about that. There are a lot of complications when investing in general, but specifically in the cannabis industry with cannabis stocks, what are some of the mistakes or pitfalls you see new cannabis stock investors make that are avoidable?
Alan: Unfortunately, I keep saying the same thing. I think one of the things I notice is, you know, a lot of people don't know how to read the filings, and that's fine. But you should just be aware. If you don't read the fine print, you get what you deserve. And I think that's point number one, that there's a lot of information in the filings. And I always tell investors, and a lot of people find this surprising, and it's still the case that there are many companies that trade in the United States that don't file with the SEC, yet the OTC markets allows them to the trade. I always caution against that. So that's a mistake that people make, number one.
I think number two, there's this concept that I've noticed, even within my 420 Investor community, that people like the new. Like, if it's new, they like it. And that's what happened with Tilray, in my opinion. And so there's this concept that if it's new, it must be good, and if it's old, it must be bad. And I think that's flawed thinking and the idea... You know, if somebody pays 20 cents for something three months ago, and all of a sudden it's for sale as a public company at $1, you know, you and I would look at that a little bit suspiciously. And I think a lot of people don't really know how to do that, how to evaluate that, Matt.
So, and similar to that, I think a lot of investors take these companies at face value. And one of the things I've noticed recently over the last few months, there's some companies out there and they like to talk a big story, and people like that. Let's face it. Most of the investors in this space are men. I'm not making that up, that is very statistical. Most traders are men anyway. And there's a testosterone thing going on here I think. It's who's got the biggest grow? You know? And I don't think that's the way to invest. Whoever's got the biggest grow, that's not gonna be necessarily the best company. And by the way, it may not turn out to be the biggest grow. So, these are some of the things. There's a lot though.
Matthew: One thing I notice, maybe you could talk about a little bit, is that, well, as you mentioned, people get caught up in narrative. Because I think just as humans we're geared to sitting around the fire and sharing narratives. And narratives have a very powerful place in our society. But also I noticed that there's the excitement level when the cannabis stocks are skyrocketing, is when people start to come in, new, interested people, where I say...
Alan: Oh my gosh, yes, I should have said that.
Matthew: When it's down, when it's like...when you feel like you're gonna puke if you buy a share, like, "I feel disgusted even thinking about buying it," like, that's when I become interested.
Alan: I should have mentioned that too. Look, I run a subscription service, so I'm painfully aware of this. And I actually had...I had to do something that I think it was smart, but some people think it may not be smart, and... I basically stopped my growth because I noticed right to your point that the cycle, that when the news media is all over it and the prices are going up, that's when people want to subscribe to 420 Investor. And when it's down and out, they don't.
And so what I was experiencing in my business was a lot of churn. People would come in, and they'd come in after the prices would go up, and they'd start to buy, even though I wasn't telling them they should buy, and then they lose money, then they get mad at me, and they quit. So, it's all my fault, right? So, I went from monthly to annual subscriptions, which obviously slowed my growth because people don't necessarily wanna pay for a whole year upfront. But then what ended up happening I think was better for everybody. I have less turnover, and then the people, they're not just gonna quit when the prices are down, they're gonna keep getting information for at least a year.
But even beyond my own personal experience, what you say is 100% right. And I get a lot of questions like, "What's going on in Canada? The prices have been dropping and all the news seem so good and they're about to legalize..." I think a lot of retail investors just don't understand the cycle, and they come in at the top. It's just the way it is.
Matthew: Well, maybe they can learn from what we're talking about here. So, I get excited now...
Alan: No, they're not going to. I've been saying this for years. They're not going to. It's human nature.
Matthew: Yeah, I know. But if you can train yourself to, like, I feel sick pressing the "buy" button, that's when it ends up being good.
Alan: That's a good thing.
Matthew: So, talk about ETFs a little bit. Are there any ETFs? Are there any coming? What do you think about them? Would that be a good thing? What do you think about ETFs?
Alan: So, this is a new development since our last conversation, and there are some ETFs. And I was really negative on the first one. It came out in April of 2017, so a little over a year ago. Now, I wasn't negative on the people or anything like that, but I just felt like the structure wasn't so great. And it's tough. So everybody should understand, no ETFs are gonna be able to really invest in like U.S. cannabis operators. Not really. Because of the federal illegality and trying to get a custodian agent and all that, these efforts have been stymied.
So the first one that came out, and it's still...it's massive, and it's done very well in terms of asset gathering, and just the fact that its universe has appreciated in value, so has the fund. And that was Horizon's...or what do they call it now? Marijuana Life Sciences or something like that? But HMMJ, and it was a real IPO, and it traded on the...trades still on the Toronto Stock Exchange, and they've really improved.
And the reason I didn't like it was they had some things in there that were large and I thought kind of deluding the whole concept. They had like a massive position in ScottsMiracle-Gro, which...that's become more of a cannabis stock, but it's still not that much, it's still the wrong kind of grass, not the kind of grass we're talking about. But that was a big one. They had this Insys Therapeutics, which is just a disgusting company, and nothing to do with cannabis but synthetic cannabinoids. And like I said, I just wanna say it again, they're a disgusting company. And, you know, they were caught and just paid $150 million fine for doing illegal activities in their marketing.
You know, so stuff like that was in there. So, that was my main criticism. But now, it really is a much better ETF. I don't have any reservations. And so there have been some other ones. This one was really funny, but it used to be a, oh God, Latin American real estate ETF that failed, so they decided to turn it into a cannabis fund. And they did this weird thing. The same one, this is now called...it's MJ, and I can't remember the name, Harvest, Prime Harvest or something.
This is traded on an NYSE Arca, and the funniest thing was they did this right at the end of the year when there was a hoopla over California legalizing, and I'm not kidding you, I think that uninformed...I don't wanna call these people ignorant, but it is the right word. Uninformed people looking to capitalize what was going on in California invested in this ETF, they got all this money flowing in, and it had zero exposure to California, it was a very weird structure. It was like 50% Canadian licensed producers, 50% Japanese and Scandinavian tobacco companies. I mean, it was just crazy. It's like... And I'm looking, it's like this company has nothing to do with cannabis, it's not even close. It's like zero. And that's the way that one looked. And I really still don't...I would never send anybody to that.
But there's some other funds that have developed, that aren't ETFs, that I find actually kind of interesting. I haven't really formally recommended any of them yet, but I've definitely been following them and this is a topic of great interest to me because there are some funds out there that are publicly traded in Canada, that are investing in private companies. And so it gives the public a way to invest in private companies which have better valuations often in pre-public. And, you know, I'm watching those very closely, it's very interesting to me. There's a handful of funds out there.
And then there's another fund that trades...I'm trying to remember. Yeah, it trades publicly as well. And I think he's just investing in public companies, but still, you know, I think the guy is really smart and knows what he's doing. And I don't really like to recommend these because I'm not comfortable enough yet to do so, they tend to be relatively illiquid and small at this point, Matt.
Matthew: I mean, are we gonna get like an iShares or some huge ETF company, BlackRock to come out with an ETF in the next one year, two years, five years?
Alan: I don't think so. I think unless we get some banking law changes, that's a non-starter, unfortunately. I think we're headed there, but I think your time frame was a little off. Maybe you'll be right though. At least I hope you are.
Matthew: I think that would be cool. I mean, it would just make things a lot easier, but I think maybe we're gonna need to see federal legality, it sounds like, before that could...
Alan: I don't know if we need federal legality, it's just this banking thing. I think these financial institutions have everything to lose and nothing to gain, unfortunately. So, you know, why bend over in front of a steamroller to pick up a penny or something? You know?
Alan: They have too much to lose, in my opinion.
Matthew: Well, talk a little bit about position sizing. I mean, there's risk in a portfolio but some assets or securities are more risky than others, yet sometimes someone might have the same amount of capital in their portfolio invested in let's say Coca-Cola as they do a highly volatile cannabis stock. So, how do you kind of frame the discussion around position sizing?
Alan: So, a few things on that. So, I've done some surveys in my community, and I've just been astounded sometimes. So, I ask the questions, kind of separate questions to kind of get at the whole picture. So, I'll ask them, "How much of your assets are invested in the cannabis space?" That's one of the ones I ask. And I give the ability for them to say more than 100%, which would mean they're on margin. And you'd be surprised how many people have more than 100% of their money invested in the cannabis space. These are my subscribers. So I'm sure it's worse outside.
So, without going into all the information, I think this is another issue that some people face. Because if you're gonna invest in a company that's gonna go up 10X, do you really need to have... I mean, if you get it right and you have 100% of your money, great. But the chances are you're not gonna get it right. So, I think the people that make...that have the hardest time when the market's in a correction or down cycle, like we are right now, is that they have too much money in the sector and they have too much money in the individual name.
And I run several different model portfolios, and the...you know, I will admit that my position sizes can be pretty big. Like, I think I have rules, they're capped at 20%. And that's a lot. You know, I don't tell people how much of the money I put in the sector. I wouldn't run that model portfolio with all my money if I were a subscriber, and I try to make that point often. So my model portfolios which have some different goals and time frames, like right this minute, I think the two longer-term focus ones have 14 names in...13 names in them. Sorry, 13. And then the more trading oriented one is at seven names right now.
Matthew: Now, I want to circle back to what you were talking about with reading SEC filings and different regulatory filings. And I'll admit, you know, you get into the weeds on some of that stuff, the language and the legalese, it's just...it's so dry. But you actually read a lot of this stuff. Is there anything really egregious that you recall looking through some of these where you said, "Holy cow, unless someone read this, they wouldn't have seen it, and it's really egregious, and they should know about it."
Alan: Yeah, the most egregious thing I see, and you are right, they hard to read. And these companies obviously face lawsuits if they don't disclose certain things. But the thing I find lacking sometimes, and it is hard to read but oh so important, is the capital structure. And it kind of bothers me. Some companies do a great job of this, and they really lay it out there.
And just to be real clear what I'm talking about, you know, the capital structure consists of the number of shares outstanding, of course, and everybody puts that in there. That's easy to find. It's all this other stuff, the warrants and the options and the convertible notes, all these things that if somebody were gonna buy the company, they'd have to take this into account. In other words, these people have contractual rights to buy securities. Whether it's through conversion of debt, or through the exercise of warrants and options. And so this is the part that bugs me the most, because some companies don't seem to do as good a job as others, and there are some very tricky things in there. And the more scammy the company is, the more tricky it can be.
Matthew: I imagine. And just for...
Alan: Convertible preferreds. And let me give you give a great example actually so your readers can...listeners can appreciate this. There are these preferred stocks, and just to simplify what a preferred stock is, there's...in the capital structure you have debt in equity, equity is called stocks. Common stocks, what everybody knows, that's what trades on the exchanges typically. And the common stockholder is last in line if there's ever a bankruptcy. That's the way to think about it. Debt gets paid before anybody, and the common shareholder, he's the owner, and he's the one that gets screwed. He's also the one or she's also the one that makes the most money if things work out. So that's the riskiest part.
And they have these preferred stocks, and preferred stocks, we could talk for hours about how they work. But there's different things about them, like the voting rights, the conversion rights, rights to dividends. There's all sorts of things that make these things tricky, and they typically don't trade publicly, and most people don't even understand them. So the example I wanna share with your listeners is, there are actually convertible preferred stocks out there in the capital structures of companies that allow the holders, which is typically management or the financiers of the company, to own a constant percentage of the company.
Now, that may not strike anybody as being meaningful, but it means this. If a company goes out there and just issues stock willy-nilly, then they don't dilute themselves. These people just get to a constant percentage of the company and it creates a very perverse incentive or disincentive to keep the share count down. And it's gross, it's really...there's no reason for that. And I've caught some companies doing this, and it's unbelievable to me. I don't even think it should be legal quite frankly, but it is.
And some of them don't disclose it very clearly. You have to do things like... You have to leave the SEC document, if they're even an SEC filer, and you have to go to like the state website, Secretary of State website and get the corporate papers basically to find out how these things work. It's unbelievable.
Matthew: I think people are getting a sense listening that there's a lot of investigation work, and it's just reading and talking with other people, and kind of iterating the conversation and involving it that you get the golden nuggets and find things out. I imagine there's not a lot of huge ahas, it's more like just putting in the work and figuring out who's the best by just understanding the playing field day after day after day of reading everything and talking with everybody. Can you tell us a little bit about the community you have with 420 Investors, what they can expect, what the benefits are to joining so they can get a sense?
Alan: Yeah, sure. So, first of all, I've been...I launched 420 Investor literally five years ago, September...actually almost five years. September...mid-September of 2013. And we now have about 870 to be exact right now, in our community. And the nice thing about it is you don't even have to care what I think. There's so much to the community, the interactivity between the other members.
But, you know, I try to show leadership, there's a lot of different ways I communicate with the subscribers. So they're gonna hear from me. I have a focus list first of all, and so I take what's literally about 700 companies and distill it to 26 or 27 right now that I'm... You know, I tell people, "These are the ones I'm most interested in." Although I do pay close attention to a lot of other ones. And so I'll share information about those companies kind of in a real-time basis. I run model portfolios, three that are like real-time model portfolios and one that's a monthly model portfolio for Canadian LPs, and typically those three would involve my focus list names for the most part.
We have a chat on Wednesday...or Tuesday nights. Used to be on Wednesdays. Talking Tuesday. And that's a good opportunity for people to ask questions and... I do 10 videos a week, a very long one on Saturday morning and two a day during the week except on Friday just one, where I'm kind of for the most part talking about the stocks and not the companies, but I integrate some stuff about the companies as well. And I think people get a lot of information from those videos, but it's really one way. So, during the chat, they're able to ask some questions, and even if they can't participate live, they can email in questions. And it gives everybody a chance to hear my perspective on things they care about.
And then, gosh, the crown jewel I think is the forum. And the forum, oh God, we get about 190 discussions a week. And people can pay attention and subscribe to actually forums about the stocks they care about, and there's a lot of off-topic forums. People like to talk about the music the like or what have you. So, there's just a whole...it's a very large offering, and... You know, I've never been in a community like that. It's not something I personally have ever done, and I sometimes wonder why people do it, but then I think about how much people pay for cable TV and they just sit there and watch it. I have to tell you, this is a lot more interesting than cable TV.
Matthew: Well, Alan, I'd like to ask a couple of personal development questions to help listeners get a better sense of who you are personally. Is there a book that's had a big impact on your life that you'd like to share?
Alan: Yeah. And I remember you've asked this question in the past and I remember...I don't remember if it was the first time or the second time, but your guest the episode before me had said like one of my favorite books, it was by Clayton Christensen, and I don't even remember. Let me tell you the truth about me. I read, read, read, read, read, I just don't read books.
Matthew: What was something else you read that you find super helpful, that you think people would value?
Alan: Oh my God, SEC filings.
Matthew: SEC filings. So they're valuable but they'll put you to sleep.
Alan: I am so...it's kind of sad how focused I am. Almost everything I read about is about the cannabis industry. And, you know, a lot of it is news, and there's stuff out there that people are publishing that I read too, but it's funny. I don't have like a great answer for them. I'm just like reading, reading, reading all the time, and there's nothing that really stands out as like, oh yeah, this is my go-to place for reading.
But I wanna get that...it's a repetition, but the Clayton Christensen series actually I think was just fascinating. And I use it in the cannabis industry, and I think, you know, this whole idea about cannibalizing yourself... You know, I should tell you the name of the book. I'm not even remembering it. But Clayton Christensen is a professor at Harvard, and he basically said that companies need to innovate and basically cannibalize themselves, or they're gonna lose out.
And I think this is so appropriate in the cannabis space because most of these companies are starting out as flower producers. And we all know that flower is...becomes a commodity, and yes, it's 50% of the market, but that's not where the money is made. And so these companies in the space are going to have to continuously innovate. And if you're a big flower producer, you better start coming up with products to get rid of your...the way you're selling your flower, whether it's pre-rolls or what have you. It's called "The Innovator's Dilemma", Matt.
Matthew: Yes, yes, I was just gonna say that. Okay.
Alan: Sorry, I was not remembering the book. That was a very influential book, and I try to draw lessons on that for the cannabis industry as well.
Matthew: You know, we're talking about flower and extracting the oils, making edibles and having drinks. Like drinks and edibles and different consumables are kind of the next phase that are emerging. Like they've been around for a while, but for the general public, they're kind of becoming on the radar. And then after that, it seems like perhaps it's gonna be dialing in the exact experience you wanna feel, and...
Alan: Yeah, that's a tough one, but you are right.
Matthew: If they can crack that code and do it every time, you know, that's kind of the holy grail. There's another personal development question I wanna ask you. Actually two more. I'm gonna slip in an extra real quick. Is there a tool that you use that helps your productivity that you'd like to share?
Alan: So, I'm so boring on that. I think in the past I've told you LinkedIn, and I've found LinkedIn to be a great way for me to network with people. And I know that sounds silly, but...to a lot of people, but that helps me a lot. And I would say...I don't think I've ever answered this one before, but in some ways, it's embarrassing, in some ways it's kind of cool.
We are able to do so much with running our business in "New Cannabis Ventures" on Google Docs. And, you know, we have a two-person business, so maybe that's why it's a little bit more scalable. If you had more people, it wouldn't be scalable. But with two people, I think we have like a 24-page document where we're keeping track of everything in our business. Whether it's receivables, whether it's new prospects, charitable contributions, we give 2% of our revenue to charities in the cannabis space, all these things we're able to track in Google Docs. It's pretty amazing. I don't know if you've ever used it before.
Matthew: Oh yeah, I love Google Docs. Especially I think the kind of killer point with Google Docs is that you're all literally on the same page and you can comment together on the side, you can roll back the history and be like, "Oh, I know that we had a really good sentence in here about XYZ but I can't remember," and you can roll it back to last Tuesday at 3 p.m. to see what was there.
Alan: Yeah, you're talking like their Word document thing. The one that I'm using is more their Excel knockoff. But yeah, to me it's pretty fascinating, but I'm sure there's... We're probably gonna have to move to some real software at some point and as we get larger, and... That's probably the issue, it's just not scalable.
Matthew: Well, my last question is really more about...a question about society as a whole. And it's about a recent "New York Times" article that said back in the mid-1990s there was 8,000 publicly traded companies. And as of I think it's 2016, there's only 3,627. And that means the number available, stocks available for the average Ma and Pa or the average American is shrinking, and private equity is growing and then the average person doesn't have access to that. What do you think that says about society as a whole, that the ways of accumulating assets that most people can grasp and have access to is shrinking?
Alan: So I have to call a little bit of offsides because this is...goes well beyond my expertise, but I can still weigh in on it from my historical experience. And so I think one of the things it says is not about society, it says about the complexity of Sarbanes-Oxley actually. And especially post-2008. I don't know when you said...what was the first date that you were using? 2000 or...
Matthew: The first was the mid-1990s there was 8,000 and then 3,600.
Alan: So, I think the financial crisis and Sarbanes-Oxley and all that really...I guess that Sarbanes-Oxley was before the crisis.
Matthew: That was Enron, wasn't it? Was that...
Alan: Yeah, exactly. Post-2001, so not too long after you talk about. It just became much harder to be a publicly traded company. So, you're seeing fewer of them. I still think there's plenty. And to your point about access to private equity, I mean, there are publicly-traded vehicles for public equity from what I understand.
I don't know that there's a big social issue, Matt, but a little bit outside my expertise. I feel like there's plenty of stocks out there beyond the cannabis space, and, you know, just a lot of the companies have gotten a lot bigger. And I think it's...I hear this all the time. It's expensive to be a public company, and the risk that people take as an officer of a company, to many just aren't worth the risk. It's not just the risk, it's the hassle.
And I think another point I would say is, I think it probably reflects the maturation of our society. We're not quite like Japan yet, but we're definitely an aging society and our growth rates have slowed. Don't tell President Trump I said that. Actually, they've probably picked up a little bit. But, you know, that's just...it's just kind of the demographics, and I think that may be a symptom of that as well.
Matthew: Well, Alan, this has been really a fun conversation as always, it's a topic that most...everybody is interested in right now. Do they wanna raise capital or they wanna figure out how they can get into some investments that would make sense for them personally. If you could just throw out your websites and let people know how they can find your investment service and your other news service, that would be great.
Alan: So, for people that just want free access to what I think is good information, that would be New Cannabis Ventures. It's publicly facing, and the website there is New Cannabis Ventures, with an "S" on the end, dot-com. And there's a lot of resources there that are geared towards helping investors learn about and attract the market. And then there's things that you can sign up for, that are easily found, like our social media or our app, which has like over 100,000 active installs, or our weekly newsletter.
And then for those that really want more guidance and to be part of a community, 420 Investor, and that's all one word, 4-2-0-investor, O-R at the end, dot-com, and...I'm trying to think. What is it? @Invest420 is my Twitter handle too, and if you were to go there, you'll find links to everything basically.
Matthew: Well, Alan, thanks so much for coming on the show. We really appreciate it and have a great rest of the summer, and we wish you all the best.
Alan: Thanks, it's always great to talk with you.
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