The market for cannabis stocks was white hot as Canada prepared to legalise consumption on October 17, and while there has been a bit of a pullback since that milestone day, belief in the long-term outlook for the sector remains strong. But much bigger news for investors is still to come. Most observers believe that at some point, cannabis will become federally legal in the US, and when that happens the related opportunities will dwarf those in Canada.
Proactive Investors sat down recently with Karl Kottmeier, president of Chemistree Technologies (CSE:CHM), to discuss the current landscape in California’s cannabis market and what it takes to succeed there in both the short and long terms.
Tell us how the Chemistree team came together and how that is reflected in your corporate culture
Chemistree came together as two distinct groups, one a business group led by Doug Ford, Kirk Gamley and I that had a public vehicle interested in a new orientation, and the other a Canada-US 100% cannabis-facing group led by Justin Chorbajian, Dennis Hunter and Sheldon Aberman. We struck a deal with the specific objective of making cannabis the focus of operational and equity investments in the United States.
As far as corporate culture goes, we are like-minded in that everyone is committed to building a sustainable enterprise that creates value for shareholders. Everybody is a paid-in shareholder in the public company and the spirit is best practices and a sensitivity toward the players in the business. Dennis Hunter has been in the business for 30 years. Our chairman, Justin, also has tremendous experience, and then there are our team’s legions of contacts up and down the Pacific Northwest and across the country. We have also reached out to business opportunities in Australia, England, Germany, Greece and Italy as a function of the contact base the members of our team possess.
Financially, we are committed to the idea that we are going to limit dilution, we are going to spend money wisely – no one takes big salaries – and with the idea being to make sure growth is always number one in our corporate culture.
A lot of companies are entering the cannabis space and pursuing the California market. What makes Chemistree different?
The California market is enormous. It is in and of itself significantly larger than the Canadian market with far fewer barriers, greater consumption rates within the population and a massive tourist business. It would be going too far to say that there is no limit, but there is certainly a vast amount of opportunity in many different areas – from cultivation to processing, innovations in cultivation and processing, distribution, marketing, branding, external mandatory testing, and so on.
What makes Chemistree different is that you have a team full of seasoned industry veterans. Dennis Hunter is the biggest player in northern California by far when it comes to purchasing biomass, processing it and creating unique products. Our point of differentiation really is the management team. We have a strong component of corporate finance people, but the majority of our team is long-term cannabis industry players: cultivators, processors, consultants in design-build for cultivation and processing facilities, marketing. Not only does it make us different, but it is our competitive advantage – our people and the access they have.
Tell us where the opportunities are in California and how you are taking advantage of them.
The opportunities we look for revolve around the concept of making an existing business better by accessing these markets. You have a brand in Washington State and you want to bring that into California. How do you do that? You partner with some retail that also wants to move into California – take existing California relationships and invest in them and expand them.
My role, frankly, is to look for places we can deploy capital and continue with the idea that we are going to be as vertically integrated as possible. We have cultivation in Washington and will be building cultivation shortly in California. And there is more to come, the business that is very affiliative. You don’t want to plant your own flag, build cultivation to the sky and hope somebody buys it off you. It is hugely competitive and good people are hard to find. Go to people who are already doing it and provide them with capital
We come in providing equity capital, convertible debt or another structure that fits, and we’re able to do that because we can raise funds in the Canadian public markets.
We are at that niche level as opposed to some of the big companies who are saying we don’t want to deploy $500,000, we want to deploy $50 million. We’ll get there eventually, but right now it is about being able to put together a truly integrated business offering in California and Washington with smaller amounts of money in strong partnerships.
What do people have to look forward to from Chemistree in the next 12 months?
From the investor standpoint, there will be no shortage of news. Expansion, growth within existing markets, expansion into new markets. I’d say to anticipate some very interesting joint ventures, very interesting investments and some very interesting partnerships.