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This Movement Is Too Strong For Any One Individual: Part Two of An Exclusive Interview With CannaRoyalty CEO Marc Lustig

By Brandon A. Dorfman
Mar 22, 2018

After months of unprecedented growth, the cannabis industry was shaken to its core in early January when U.S. Attorney General Jeff Sessions announced in early January that the Justice Department would no longer follow the Obama-era policy known as the “Cole memo.” The now-rescinded federal protections for state-level legalized marijuana in the United States had global repercussions, as even Canadian-based cannabis companies were forced to reevaluate their U.S. investments.

In part two of our exclusive interview with CannaRoyalty Corp. (CSE:CRZ) (OTCQX:CNNRF) CEO Marc Lustig, we discuss what impact Sessions announcement has had on the industry, the status of Canadian legalization, and how the future of legalized cannabis is bigger than just one man.

If I could move on to the industry in general, following the announcement by U.S. Attorney General Jeff Sessions that the Justice Department would no longer follow the former Obama-era policy known as the “Cole memo” you took one of the more defiant stances in the sector. At the time you were quoted as saying, “This thing is too big a business, in the U.S.A. legal cannabis sales will outpace beer sales. Not much can impede the momentum of this sector.” Do you see any downside to or have any worries about Jeff Sessions reinvigorated ‘War on Weed?”

Yeah, I mean, there's no way to deny that it's worrying to see the opinion of just one person prevail in the face of broad public support for cannabis. I watch it as theater like I think most people do. I'm pretty sure that they're very smart people and they can see the broad public support that there is for cannabis. They can also see the broad financial impact that this is having in terms of jobs and therefore taxes and economic stimulation whether it's from real estate or contracting of new facilities or putting people to work in greenhouses or dispensaries. All the while the public has only gotten more supportive. Every month or so there's a new state that passes new legislations into their constitutions at the state level which continues to show support. So, maybe Mr. Sessions' state of Alabama or some of the states around that area have a bias against the progress of legalization, but everywhere else in the country, which I think is also their responsibility to represent, has been very supportive.

Cannabis

There's another topic which I'm surprised hasn't raised up to the level of a national discussion about cannabis - it’s one of the grossest health issues of my lifetime - it’s watching what's happening with opioid addiction. The president has begun some kind of task force to try to address this catastrophe. If someone was really doing their work and paying attention, they would see very quickly that in addition to broad public support, the financial stimulus in terms of jobs and economic growth and taxes, etc. there's also a very strong societal benefit from the use of cannabis. Especially in the states where you see the most cannabis use, like Colorado, you also see a corresponding reduction in opioid deaths from overdose and addiction.

To me, if people are playing it straight and being honest about cannabis then, I do think that this movement is too strong for any one individual to, without any consultation, stand up and start rescinding previous policies that stood for the progress of the sector.

Of course, Jeff Sessions actions have caused waves not only in the states but throughout the global cannabis market. As a CSE-listed company, you were advised to provide public comment on the impact the Sessions’ decision could have on your business. Are you at all apprehensive about your U.S. investments at this point?

Not really. I mentioned earlier that we're always watching U.S. federal law very carefully, but we really believe that the opportunity that we're giving our shareholders by investing into very strategic and important assets in places like California is well worth the noise and even risk in the near term from the federal confusion in the United States. So, we don't have any plans to slow down in that respect. We acknowledge that this is also new that government and regulators are really also very smart people who are really just trying to work within a sector that's moving way quicker than people are used to with other types of sectors. You're going to run into some of this confusion and noise from time to time.

When you have an environment like the one I laid out before about just how positive and supportive most of society is and probably will continue to be, especially as medical uses become clearer, then I think we'll look back at this period and just think that it was a period of time where regulators needed time to put into place the proper legislation, and for CannaRoyalty shareholders specifically it was not without risk. But I think it will turn out to have been worth the risk given the size of the opportunities that we're providing exposure to.

Cannabis

You had an interesting quote back when Constellation brands bought their 10 percent stake in Canopy Growth (TSX:WEED). You said, "It's the single biggest validation by big industry that we've seen in the cannabis sector," And you went on to say, "In terms of progress and validation for the sector, this is right up there with various government policy-driven  announcements like Canada's federal legalization or changes within state policy in the U.S." From a different perspective, I wonder, are you ever worried that the cannabis industry is heading towards the type of consolidation where big pharma and big tobacco and big alcohol are just waiting in the wings to swallow it whole?

Absolutely. People ask me-- to some people it's very counterintuitive, but I think it ends up making sense -- people ask me what the biggest risk to CannaRoyalty's business is and I say it's federal legalization in the United States. That’s because literally the day after that happens it's clear that I could see five different major industries immediately putting very significant capital to work to acquire and effectively just drive out of business any other players in the market. For CannaRoyalty shareholders I see that being an opportunity for an exit on either entirely our company or asset by asset within our company. So, I see it as a short-term extremely positive thing for shareholders, obviously, just because the asset values will go up, but in terms of executing our model, we've been able to accomplish what we have because those types of players have not been able to be in the markets.

You take a tobacco company; they can't currently acknowledge that cannabis is the next growth area in the consumption of leisure or recreational products until they can compete otherwise they'd be cannibalizing their cash cow. So, I see it as a huge plus for CannaRoyalty shareholders because companies would drive up the values of the assets that we own. But I would see it as a long-term end of a great journey that we've been on.

Let me ask you, in speaking with some other industry executives recently I have heard some people express their concerns that Canada wasn't ready yet for the move to legalization. That the framework wouldn’t be in place by this summer. Where do you see Canada's legalization efforts? Do you think they'll be ready by this summer? [Editor’s Note: This interview took place prior to the Canadian Senate hearing announcing a possible delay in Canada’s legalization efforts.]

I commend the federal government. They've kept their foot right on the gas and have been very clear about the time-sensitive nature of their priorities. I do think they’ve met the peoples' expectations. The structure here in Canada, with the provinces, is sort of analogous to the structure in the U.S. There's the federal government, and then there's state governments just like you have there. There are ten different provinces in Canada all needing to digest the federal policy for security, i.e., police forces, and then there are the municipalities that have to do the same, and there are thousands and thousands of those per province. Each of them has to go through whatever process of input they have decided to give to their citizens. Plus there’s bylaws and zoning changes and those types of things. And then, there is the nature of legal dispensing.

As an example, the provinces themselves have each been given oversight in terms of how they want the dispensing part of the continuum to go. Right now you've only had four provinces out of ten officially say how they plan to dispense cannabis products, which is probably the most important feature of this whole thing. Right now there's 90 or so Canadian licensed producers that can grow cannabis, but the growing to me isn't the issue. The issue is, how are you going to find the shelf to put it on for a consumer to go buy it? If we're in February today and someone thinks that all of those things that I just went through and probably a dozen more that I didn't even touch on are going to be fixed in five months then, you know, I'll be surprised.

Investing

Final question and this one is a little open-ended, but what don’t our readers know about CannaRoyalty that you think they should know?

You know, I don't think that the investing public really understands how much upside there is in the CannaRoyalty story whether it's because of our assets in California, or because of the brands that we either have today developed and commercialized or that are in development. I think our company is still relatively poorly understood and that the value that we're driving in comparison to a cultivation-focused company, but at the end of the day I think a cultivation-focused company is providing an ingredient into a finished product.

Like, in the beer example, do you remember or know who grew the hops that went into a Heineken? Or do you appreciate Heineken for the brand, the bottle, the packaging, the experience itself, the repeatability and likeability of that product? It’s really where the bulk of the value is in that type of consumer product, and I think that there's a lot more to come for CannaRoyalty shareholders and for the investing public that isn't really well understood about CannaRoyalty. When people do understand it, I think there'll be an appreciation that it's a very good way to invest into the cannabis sector because of the diversity, again, across geographies and the focus beyond cultivation.

*Check out Part One of our Exclusive Interview with CannaRoyalty CEO Marc Lustig where we discuss the company, their assets, and the importance of California’s cannabis market.

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