WEBVTT - Goldenseed CEO Says Cannabis Market 'Insulated'

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<v Speaker 1>This is Bloomberg Business Week with Carol Masser and Jason

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<v Speaker 1>Kelly on Bloomberg Radio Walking. The cannabis cultivator Golden Seed,

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<v Speaker 1>is among the first of its kind to earn approval

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<v Speaker 1>for a nationwide public offering from the SEC. Call it,

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<v Speaker 1>if you will, a mini I p O. We're gonna

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<v Speaker 1>talk about that. We're gonna talk about the cannabis business. Business.

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<v Speaker 1>Excuse me. Scott Goldie is with us, he CEO of

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<v Speaker 1>Santa Cruz based Golden Seed, and he joins us in

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<v Speaker 1>our Interactive Broker studio on this Friday. Welcome, nice to

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<v Speaker 1>have you here, Thank you, Thank you for having me.

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<v Speaker 1>Tell us a little bit about your business. And I

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<v Speaker 1>mentioned to you before we got going off air that

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<v Speaker 1>we had jealous ality of cure Lea Finns. So cannabis

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<v Speaker 1>is certainly and the industry something we've talked a lot

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<v Speaker 1>about over the last two years, going from I think

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<v Speaker 1>to focus so much on the Canadian companies a little

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<v Speaker 1>bit more now on the US companies, and now we're

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<v Speaker 1>just trying to figure out, you know, where the regulatory

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<v Speaker 1>environment goes and what that means for the growth of

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<v Speaker 1>the business. Tell us about our company, golden seed. We

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<v Speaker 1>started a couple of years ago and UH initially to

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<v Speaker 1>be a cultivator and to sell wholesale UH cannabis to

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<v Speaker 1>the market. UH we got into a situation where our

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<v Speaker 1>harvest was reduced UH with regulatory issues in California, and

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<v Speaker 1>so we immediately went into the retail market with the

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<v Speaker 1>product pre roll joint and it was very unique in

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<v Speaker 1>that we included a turpene tropic typene, and that's really

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<v Speaker 1>the Roman the flavor of the plant, so that same

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<v Speaker 1>plants flavor intensified in the joint. And essentially the first

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<v Speaker 1>two contests we entered, we were we won the Gold Cup,

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<v Speaker 1>and our brand was really established and to create enterprise value,

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<v Speaker 1>I think in cannabis you can't just be a cultivator.

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<v Speaker 1>You have to have a lifestyle brand, and Santa Cruz

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<v Speaker 1>is a perfect place for that. I have to say,

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<v Speaker 1>I was in Santa Cruz over Christmas break that checks out.

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<v Speaker 1>It is such a great laid back part of the country.

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<v Speaker 1>I mean, what's interesting too is your you know, your

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<v Speaker 1>background is largely in real estate, environmental land red mediation,

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<v Speaker 1>so like tie that together for us, what have you

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<v Speaker 1>seen from sort of that background that sort of lad

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<v Speaker 1>you here. Well, you know, we have been a real

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<v Speaker 1>estate developer in finance for thirty years, my own company

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<v Speaker 1>for twenty years. About five years ago we started buying

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<v Speaker 1>operating companies that had real estate. The first big acquisition

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<v Speaker 1>was the Napa Valley wine train as that ends up

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<v Speaker 1>with like seventeen other pieces of property we could develop.

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<v Speaker 1>About three years ago the opportunity to buy a nursery

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<v Speaker 1>in Santa Cruz County that sells conventional plants that came

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<v Speaker 1>to us and so that business is essentially funded the

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<v Speaker 1>start of the cannabis UH company. We've parceled off twenty

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<v Speaker 1>acres to have the appropriate zoning and started that operation.

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<v Speaker 1>So it's a real estate play and it's also an

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<v Speaker 1>operating company play. But um, so give us a little

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<v Speaker 1>bit idea of the outloo because I think, you know,

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<v Speaker 1>we're trying to figure out kind of where does the

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<v Speaker 1>industry go from here, because I think the regulatory environment

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<v Speaker 1>is taking slowerty evolved, certainly on a federal level. Then

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<v Speaker 1>everybody anticipate anticipated in more states certainly are signing on

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<v Speaker 1>in terms of medical marijuana and recreational Um, how do

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<v Speaker 1>you see it though? For us out in California, it's

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<v Speaker 1>still insulated, right because it's not a national market. The

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<v Speaker 1>regulatory environment and California is very difficult. Uh. The legal

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<v Speaker 1>market last year is about three billion. The black market

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<v Speaker 1>and California is estimated at eight billion. So you know,

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<v Speaker 1>until they can get some really strong compliance and enforcement,

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<v Speaker 1>that's going to continue to be a challenge. And that

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<v Speaker 1>challenge is the accepted industry, right or the legalized industry.

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<v Speaker 1>On the flip side of that, you know, if you're

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<v Speaker 1>a producer of legal cannabis, there's a great market for it.

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<v Speaker 1>And so how did how does that imbalance get solved?

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<v Speaker 1>Like what are the sorts of regulations, the sorts of laws,

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<v Speaker 1>or I guess maybe just the sorts of enforcement that

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<v Speaker 1>need to happen to sort of bring that essentially the

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<v Speaker 1>other way, right, that the that the legal outweighs the illegal. Well, first,

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<v Speaker 1>I think the regulations need to be clarified and may

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<v Speaker 1>be simplified. It's been kind of a disaster the way

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<v Speaker 1>it's unfolded in California. The big hurdles for legal weed

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<v Speaker 1>is the the pesticides, the testing that's required, the taxes,

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<v Speaker 1>and there's very arcane rules that are different different by

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<v Speaker 1>every jurisdiction. I'm in three counties right now, three sets

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<v Speaker 1>of rules. So it's very this is this is largely

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<v Speaker 1>regulated on the county level, not the state level, and

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<v Speaker 1>the state basically delegated the jurisdictions the right to create

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<v Speaker 1>their own ordinances. Taxes are different, everything. It's different in

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<v Speaker 1>building permits, standards. So it makes it really hard to

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<v Speaker 1>have an enterprise that's in multiple areas. I mean, here

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<v Speaker 1>here we've talked about how you have to be vertical

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<v Speaker 1>in in a single state because of the lack of

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<v Speaker 1>obviously federal regulation or or anything like that. I did

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<v Speaker 1>not know that it been deeper way down county County.

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<v Speaker 1>I think that's ultimately gonna be a challenge when that

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<v Speaker 1>becomes federally legal. Is you have all these different states

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<v Speaker 1>of their own rules, all the counties and jurisdictions within

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<v Speaker 1>the states have their own rules, and I think creating

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<v Speaker 1>an order to that type of market's gonna it's going

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<v Speaker 1>to be a challenge. So, okay, so when do you

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<v Speaker 1>see a more orderly market like is it? Can you

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<v Speaker 1>even do even have that kind of visibility to be

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<v Speaker 1>to say that, I don't know, it's gonna be another

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<v Speaker 1>year or it's gonna be another five years, and it

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<v Speaker 1>really is down to the federal government. I think that

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<v Speaker 1>I think we're within five years it will be federally legal.

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<v Speaker 1>Might even be sooner than that. Recreational and medical, Yeah,

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<v Speaker 1>I believe that. I actually, you know, in the short term,

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<v Speaker 1>just from my own company's perspective, it's not bad that

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<v Speaker 1>it is federally illegal because I can establish my brand

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<v Speaker 1>and presence in California, which is the largest legal market

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<v Speaker 1>cannabis in the world. So we'd be remissed because we

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<v Speaker 1>want to talk to you about disapproval that you got

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<v Speaker 1>to do a nationwide public offering to offer shares to

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<v Speaker 1>the public. Talk to us a little bit about this

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<v Speaker 1>and why you chose this route. Well, you know, the

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<v Speaker 1>capital markets and cannabis are difficult, and our company were

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<v Speaker 1>not friendly right now, very very much so, so we

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<v Speaker 1>self funded until we got to the point where we're

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<v Speaker 1>very close to turn the corner and going cash flow positive.

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<v Speaker 1>We came to the market the first cannabis company in

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<v Speaker 1>the United States to be qualified by the SEC to

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<v Speaker 1>sell shares in our private company regulation is unique and

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<v Speaker 1>that you don't have to be an accredited investor, so

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<v Speaker 1>we can sell to anyone in the United States or

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<v Speaker 1>even in the world. So after a little bit five

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<v Speaker 1>weeks we have about people that have applied for investment.

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<v Speaker 1>There's a clearing mechanism, so about eight hundred seven hundred

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<v Speaker 1>official investors. The mechanism background checks. You have to provide

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<v Speaker 1>your I D. California requires that takes a couple of

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<v Speaker 1>weeks to clear. Uh. You know, it's very simple, straightforward, sus.

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<v Speaker 1>Our website is owned Golden seed dot com. You can

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<v Speaker 1>pay it the credit card minimum investment of only a

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<v Speaker 1>hundred dollars. But the cool thing of ISZI creates brand

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<v Speaker 1>ambassadors for our lifestyle brand and you know, to have

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<v Speaker 1>national exposure before Canadas goes legally nationally. I mean, we're

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<v Speaker 1>building a we're building a base in all these states.

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<v Speaker 1>So how has no one done this before? I think

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<v Speaker 1>people are intimidated by the fact the SEC is a

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<v Speaker 1>federal agency and could you really get through that? And

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<v Speaker 1>it's not inexpensive to do it, and so we took

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<v Speaker 1>the risk that we could get through it. Great Securities

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<v Speaker 1>Council Kendall Almerico, He's done other regulation A offerings and

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<v Speaker 1>it's been a great experience, And so is this a

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<v Speaker 1>precursor to a more traditional I P O or what

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<v Speaker 1>what does this get you from a financial perspective and

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<v Speaker 1>what happens next in that regard. Well, this offering is

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<v Speaker 1>you can have it open for a year. Our offerings

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<v Speaker 1>for ten million dollars. We can close it at anytime

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<v Speaker 1>if we want to look at changing the valuation. Uh,

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<v Speaker 1>it's gonna how sticky is it that? In other words,

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<v Speaker 1>if someone makes an investment and then they decide I

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<v Speaker 1>don't want to be in it, is there a commitment

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<v Speaker 1>or is it liquid? Can they get out of it?

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<v Speaker 1>They'd have to sell out to another individual, so they'd

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<v Speaker 1>have to find somebody. There's not a market for it.

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<v Speaker 1>Uh yeah, But so our goals uses to reinvestment facilities,

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<v Speaker 1>marketing and building the brand and just keeping our debt low. Alright,

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<v Speaker 1>So tell us about how you see this market growing

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<v Speaker 1>for you. What does it mean to be a lifestyle brand?

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<v Speaker 1>What is it? What does that mean in terms of

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<v Speaker 1>different products? You mentioned him, but give us the whole

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<v Speaker 1>portfolio as you envision it. Well, what I like to

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<v Speaker 1>say is that we're going to be one of the

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<v Speaker 1>strongest vertically integrated companies in both hemp and in cannabis.

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<v Speaker 1>And you know early on when I was stocking to

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<v Speaker 1>private equity groups, being a cultivator is not going to

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<v Speaker 1>be creating a lot of enterprise value. You know, Coca

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<v Speaker 1>Cola is going to buy a Gatorade, They're not going

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<v Speaker 1>to buy a production facility, say at a big valuation.

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<v Speaker 1>So for us, it's continuing to grow that brand, get

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<v Speaker 1>exposures and stakeholds in other states, and we think that

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<v Speaker 1>will be very attractive. You know when the consolid consolidation happens,

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<v Speaker 1>and you do anticipate that there's going to be more

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<v Speaker 1>of it there or there has to be, right absolutely,

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<v Speaker 1>because economy is a scale, right. We heard that from

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<v Speaker 1>Pure Leaf that basically like we're at this moment where

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<v Speaker 1>there are a lot of smaller players that are going

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<v Speaker 1>to uh that are going to get uh sort of

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<v Speaker 1>either put together somehow or another. Uh So how expensive

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<v Speaker 1>is expansion though? Because you do have to be essentially

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<v Speaker 1>vertically integrated state by state, you can't really have any

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<v Speaker 1>kind of cross business, right, We're not planning going to

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<v Speaker 1>any other states until there's potential to license our genetics

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<v Speaker 1>and other states. We've been exploring that but we won't

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<v Speaker 1>be doing that anytime soon. A lot of business in

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<v Speaker 1>California at this point, it's the largest legal market in

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<v Speaker 1>the world. What do you see is the biggest risk

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<v Speaker 1>to your industry right now? I think the regulatory risk

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<v Speaker 1>and kind of the confusion around that causes a lot

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<v Speaker 1>of expense, a lot of uncertainty, and it's really kind

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<v Speaker 1>of rundom how they enforce. And do you imagine that

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<v Speaker 1>you will do acquisitions? Uh, you know they're in California

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<v Speaker 1>because there are other smaller players right now. We're looking

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<v Speaker 1>at some opportunities right now where we may bring some

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<v Speaker 1>in under our umbrella. And I think again, if you

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<v Speaker 1>have a company that's looking to acquire, you have multiple

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<v Speaker 1>lifestyle brands that would be a good target. We also

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<v Speaker 1>can combine your cultivation, right right, Yeah, I mean this

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<v Speaker 1>is a classic sort of scale business and in some

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<v Speaker 1>place I would imagine, but I do wonder about cash

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<v Speaker 1>burn right as you wait for the regulatory environment, it's

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<v Speaker 1>going to be kind of tough, or is it. Once

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<v Speaker 1>we start our cultivation. Our first starvist will be in May. Yeah,

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<v Speaker 1>that will be the turning point. Okay, Hey, good to

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<v Speaker 1>check in with you. Very interesting as it grows up,

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<v Speaker 1>as it were, all right, it's got Goldie? Is this ce?

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<v Speaker 1>I did? Well? You know you? What did you do earlier?

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<v Speaker 1>You did something earlier, Dear, I don't even see how

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<v Speaker 1>you can criticize that was a really bad one. Scott

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<v Speaker 1>Goldie as the chief executive abuser of gold and See

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<v Speaker 1>based out in Santa Cruz, California, here with us in

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<v Speaker 1>New York City today