Cannabis, Crypto — Craft Beverages & DOT.Com Observations

[ALSO PUBLISHED ON: LinkedIN, MEDIUM]

I spent a fascinating week learning about two of the hottest investment and business opportunity spaces right now. The block chain, crypto and initial coin offerings (ICOs), and the cannabis industry are literally on fire. Given this, I wanted to get an understanding of what’s really happening. I’ve been following the development of the block chain/coin movement along with the emergence of the legal cannabis business as these both are displaying signs of developments that may cause massive disruption (and therefore potentially big opportunities). Venture capitalist Tim Draper has been an outspoken proponent of the block chain and crypto offerings (see Exclusive: Billionaire investor Draper to participate in blockchain token sale for first time), while Jamie Dimon of JP Morgan Chase has been dismissive (see CNBC).

Constellation Brands (STZ-B) announced recently that it had agreed to take a 9.9% minority stake in the $2 billion Canadian medical marijuana company Canopy Growth. The stake is worth about $191 million, though Constellation will have the option of purchasing additional stakes in the future. This aggressive move marks a significant milestone with the first publicly traded US company making a material investment in the cannabis space. For the industry in which I have spent much of my business career — beverage alcohol (beer, spirits and wine), it’s also a taboo shattering wake up call. The financial community apparently agrees with the financial analysts, giving high marks for Constellation’s vision and the market supported it with a gain of over $1 billion in STZ’s market cap (essentially more than paying for the investment). Visiting Colorado frequently, I’ve seen how quickly the legal use of medical and recreational marijuana has ramped up with the state of CO taking in over $550 million in tax revenue as of July 2017.

To learn more about each of these rapidly developing industries and to test my hypothesis of potential disruption, I attended the StartEngine ICO 2.0 Summitin Santa Monica followed by the MJBizCon in Las Vegas which together gave me an interesting perspective. Here I will share some of my observations.

General Observations

First, I met a number of really smart people pursuing these industries with a wide range of business and investment strategies. I had the good fortune to join up at YPO meeting-in-meetings at both events and, as usual, learned a great deal from these informal gatherings and met some of the people leading the way in both industries. I cannot say enough good things about the YPO network and the ability to quickly get to the movers and shakers in any industry or geography, globally.

The hype around these industries surpasses the craft alcohol craze and matches Dot.com in 1997–2000. I know both of these booms well having participated by investing and starting my own DOT.Com eSkye.com raising over $55 million (Tim Draper’s Dad, Bill Draper, invested see Forbes) and my multiple ventures in the craft beverage space. The bright light inevitably attracts all kinds of people and as in both of these examples, there are a ton of people who have limited or no business skills coupled with business ideas/plans/ventures with little to no chance of scaling to success. The cannabis side has more similarities to craft beverages in that it appears that 95% of businesses currently in or entering the space are really “mom and pop” operations that are more lifestyle businesses than scalable enterprises. However, what is absolutely clear to me is that, this is changing rapidly with the addition of serious investors and business operators.

Block Chain — ICO What is it?

The technology of the block chain is real and big. I’m convinced over time, it will fundamentally change the financial side of all industries. This MIT Sloan article does a pretty good job of discussing the potential. Its potential is hard to overestimate but not without controversy. See John Battelle’s discussion of it here Alien, Dismissible, Dangerous, Greedy, True and the fights going on inside Venture Capital firms here CRYPTOCURRENCY MANIA FUELS HYPE AND FEAR AT VENTURE FIRMS .

For my non-technical friends, I’ll try to define it here in my own way. For my expert friends, let me know what I get wrong as I’m still learning. The best simple explanation I’ve found so far is A Blockchain Explanation Your Parents Could Understand. Essentially, instead of a central party (think a bank) keeping track of everyone’s money and transactions with each other, the record keeping takes place in public (without revealing names) with 1,000s or more independent operators verifying the information and agreeing on its accuracy before securing it. While banking and financial transactions are the first use, there are many other uses being worked on and many more to come.

The ICO “Initial Coin Offering” market is booming with new business ideas for the application of this technology. Over $2.8 billion has been raised using ICOs thus far in 2017. These have been unregulated and range from real businesses to potential frauds. The ICO 2.0 Summit put on by StartEngine was really about bringing the ICO market into the regulated security market in the US. It is clear to me, from the many presentations, that an offering for a coin to fund a venture is an offer for a security, and therefore falls under the SEC. There are many in the crypto world who dislike this and will fight it, but governments are not going to simply sit back and allow investments outside their mandated oversight just because they are called “coins”. Given that, I agree with StartEngine’s CEO Howard Marks that the crowd funding Regulation A and also traditional Regulation D exemptions are the proper way to issue an ICO in the US.

Lou Kerner gave an excellent presentation based on his article, Is Crypto (Like) A Religion? & 6 Other Crypto Thoughts .

He followed this with a very interesting fireside chat with Michael Jones CEO of Science who is serious about the space and currently has an ICO in the works.

We heard from 17 companies planning to do ICOs of some kind. Again, I can’t help but compare this to DOT.Com days as there were clearly real business ideas and teams and others that are simply slapping the ICO label on something that is really not well thought out. What was true back in 1997–2000 in DOT.Com is true today — there are and will be billions of dollars invested in the block chain space, some of it will go into real business ventures and some of it will go into not-so-serious business ventures. Sorting these out will not guarantee your investment is the next Google or Amazon, but is absolutely the key to avoiding almost certain failure.

Cannabis — Marijuana Industry — Where is it now and where is it going?

From a story in Fortune Magazine regarding Constellation’s investment — “The wines and spirits conglomerate has no intention of selling cannabis products in the U.S. until it is legal nationwide. But the company is betting that legalization is just a matter of time, according to the  Journal . However, Constellation may soon sell the marijuana drink product in Canada, where legalization of edible and drinkable cannabis products is expected by 2019.

The move comes amid signs that suggest some consumers are reducing alcohol usage in favor of cannabis . “We believe alcohol could be under pressure for the next decade,” Cowen analysts led by Viven Azer wrote in an April note. “Consumer survey work suggests [about] 80% of consumers reduce their alcohol consumption with cannabis in the mix.”’

Given the above, what is the current state of the legal cannabis industry and where is it going?

The legal industry today is estimated at $5–6 billion and expected to grow to $12–17 billion by 2021. While this is only a fraction of the US alcohol market which stands at $200+ billion today, it could take some of that business (especially in beer in my opinion). So it’s big already and its going to get much bigger quickly. State legalization started with medical use and they are rapidly adding recreational. Cassandra Farrington, CEO and Co-founder of Marijuana Business Daily who put on the conference gave a great presentation on the history of the industry. Basically, the timeline she presented is as follows:

· 1996 California passes first medical marijuana law

· 1998–2008 other states follow

· 2012 Colorado, Washington pass recreational cannabis laws

· 2014 OR, AK add recreational. Canada liberalization takes root.

· 2016 11 legalization ‘wins’ in the US — 4 medical and 4 recreational via ballots and 3 medical via legislative action. Importantly, CA adds recreational in January 2018

Here is a map showing the current state status:

Over ½ the US population lives in states with legal marijuana use — with 30 states + Washington DC allowing legal medical use and 8 states plus Washington DC allowing recreational use. That being said, it is still 100% illegal at the US federal level. This means there are significant risks and hurdles for investors and businesses who enter the space. Banking is very difficult as the national banks cannot conduct business in the space. Anyone contemplating investing in the space needs to be aware of these issues. In spite of these challenges and an uncertain regulatory environment, many investors and business owners are jumping in with both feet.

One of the best presentations I heard was by Patrick Rea, the managing director of Canopy, an early stage fund that has made more than 100 investments in the space. He breaks the business down into four investment buckets:

  1. Public Stocks — these are the Canadian companies like the one Constellation invested in.

2. Real Estate — this is the buildings for dispensaries and the land for farms

3. Touch the Plant — these are the actual growing, processing and selling businesses

4. Ancillary Products & Services — these are all the things around the business from software to equipment to banking to marketing.

Canopy is focused on #4 exclusively but there are certainly opportunities in all of these.

From a branding and stage of industry development perspective this is literally a “green field”. I saw some interesting but nascent offerings given the time businesses have had to think about and try to develop brands. With new entrants, this will of course change, but right now I can’t help but think it is like the days when Sam Bronfman and Lewis Rosenteil were at the cusp of the repeal of Prohibition ready to launch Seagram’s and Shenley’s whiskies into the US respectively.

Where is this headed? It’s hard not to believe there will be continued legalization on a state by state basis. With the overwhelming majority of American’s viewing legal cannabis favorably, and importantly with the amount of tax revenue legal markets are bringing, other states will certainly follow to not get left out. Federally it will likely take longer, but like alcohol and the repeal of Prohibition, it will probably only happen if it is left up to the states to decide how their citizens want to allow cannabis regulation.

What’s clear to me is that there are huge opportunities in both these new industries. What is unclear is who will emerge as the big winners. I know from personal experience what being ahead of the market is like. The next few years will be like settling the wild west and a lot of entrepreneurial ventures will be created to try out different ideas in both cannabis and blockchain. I will come back to these topics as I learn more on both and please share any thoughts you may have. Cheers!

included in this article Howard Marks Tim Draper John Battelle Lou Kerner Patrick Rea StartEngine Constellation Brands Canopy Growth Corporation MJbizwire Jamie Skella WIRED Erin Griffith Phyllis Berman YPO Michael Jones Cassandra Farrington Seagram Fortune Magazine Jamie Dimon

Thriving In The Gig Economy by Marion McGovern

This is a useful guide to both the independent consultant/worker as well as business owners looking to take advantage of the new gig economy. Marion brings such a deep understanding and perspective to the topic and organizes all the disparate bits of information (noise) into logical and bite sized nuggets for consumption.

You can view it here on Amazon

Beach Whiskey Company Acquires American Harvest® Organic Vodka

Award-winning craft organic vodka highlights farm-to-bottle movement

I’m pleased to share our acquisition of American Harvest Organic Vodka from the Frank family. This is an incredible brand and we could not be more excited to add it to our Beach Whiskey Company portfolio. Our Beach Whiskey™ is taking off and we have had the most incredible reception from the trade including some of the most important national accounts in the industry. This is driving us to move faster and rollout nationally early. The addition of American Harvest fits perfectly with this effort as it was national and in most of the key national accounts under Sidney Frank Importing Company.

  

We believe the new branding (packaging) fits perfectly the farm to glass, sustainable nature of American Harvest. While the old packaging was unique, this new look, with American glass and recycled paper label, disclosing the source of all ingredients is on message. I hope you all like it.

I look forward to bringing both Beach Whiskey and American Harvest to market and to scale this year. Below is the official announcement:

The Beach Whiskey Company, a national spirits company, announced today its acquisition of American Harvest Vodka®, an American-made organic vodka, which merges the farm-to-bottle movement with the exploding craft spirits category.

American Harvest Vodka was created by the Sidney Frank Importing Company (SFIC) in 2011 and gained a strong national foothold by 2014. When SFIC was acquired by Jägermeister of Germany in 2015, the Frank family retained ownership of the brand. The sale of American Harvest to the Beach Whiskey Company returns the brand to one of its creators, Bill Henderson, now Chief Marketing Officer of Beach Whiskey.  Terms of the deal were not disclosed.

“Organic and craft spirits have shown significant growth over the past five years, and Double Gold Medal-winner American Harvest has already shown its ability to stand apart from other super-premium vodkas,” said Smoke Wallin, CEO, Beach Whiskey Company. “Now is the time for a national organic craft vodka, and American Harvest Vodka fits seamlessly into the Beach Whiskey portfolio while accelerating our national growth plans. Distributors who previously carried American Harvest are eager to have it back, and this is creating additional opportunities for the Beach Whiskey portfolio.”

American Harvest is handcrafted in small batches from American wheat and distilled with 100 percent certified organic ingredients to yield a distinctly smooth spirit with a crisp, clean and slightly sweet hint of real agave. The wheat is estate grown from a single family farm, and the water is from a protected source beneath the Snake River Water basin.
“American Harvest is a brand near and dear to my heart,” said John Frank, former Chairman of Sidney Frank Importing Company and new member of the Beach Whiskey Advisory Board. “We went to incredible lengths to ensure purity from farm to bottle in creating this truly American spirit.  I’m pleased to see American Harvest in the hands of Beach Whiskey’s very capable team, and I look forward to contributing to their portfolio’s exciting growth.”

“Acquiring American Harvest made perfect sense to all of us at Beach Whiskey as we look to create value for our investors and bring innovation and a great marketing to our trading partners, “ said Andrew McGinnis, co-founder and Chairman of Beach Whiskey Company

“While craft spirits have taken off, so too are consumers becoming increasingly focused on the provenance of their food. They want to know who raises their beef and from which farm their fruits and vegetables are sourced,” said Bill Henderson, Beach Whiskey CMO. “American Harvest Vodka was created because we believe the same can and should be true for spirits.”
American Harvest Vodka (40% ABV) will be returning to shelves across the country and is expected to regain its national footprint in 2017. SRP: $24.99/750ml.

Here is a video on the American Harvest brand story… (old bottle):

American Harvest Organic Vodka Full Video Story from J. Smoke Wallin on Vimeo.

About The Beach Whiskey Company
The Beach Whiskey Company is a disruptive brand innovator in the adult beverage space that is building a portfolio of rapidly growing national brands. The Beach Whiskey portfolio includes Beach Whiskey Bonfire Cinnamon™, Beach Whiskey Island Coconut™ and American Harvest Organic Vodka®.

Beach Whiskey™ is a reimagined take on traditional whiskey. A line of smooth, clear, naturally flavored American whiskies made for sun worshiping, moon chasing, fun seekers, Beach Whiskey offers day-drinkable flavor profiles presented in sea glass-inspired bottles. No matter where you are, our mission is to bring the beach—”your place in the sun” —to thirsty, fun-loving whiskey drinkers everywhere. Please sip and swim responsibly!

American Harvest Organic Vodka® is proudly handcrafted in small batches from organic American wheat, certified organic ingredients and Snake River water.
For more information, please visit:
www.facebook.com/americanharvestvodka

«

%d bloggers like this: