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The cannabis industry is at an interesting point in its journey towards a destination of which it remains clueless, and the stress of that obliviousness is becoming palpable. The result has been a surfeit of distressed cannabis assets, and with good reason. How indeed is one supposed to know the cost necessary to achieve success when the ability to run a profitable business is always one (or two) catalysts away, and no one can see far enough to plan an exit? What is the owner whose business has ground to a standstill or is on its way to one supposed to do? As much as people wish for a miracle, and as much as everyone knows that one day a miracle of sorts will take place and a modicum of normal commerce will descend upon cannabis, no one knows how long that will take to happen. In the meantime, the industry is feeling despair and a surge in the number of distressed assets, a term that can encompass a business with virtually no value and one that has value left in it but is handicapped with an operator who is simply too exhausted to continue the fight. This is the sad but opportunistic terrain on which cannabis currently finds itself deployed.
To gain a better idea of the challenges operators face and the strategies needed to maneuver in a distressed asset environment, Cannabis Business Executive spoke with Jordan Tritt, a veteran cannabis investor and CEO of The Panther Group, an Atlanta, Georgia-based cannabis investment group and business advisory firm. As Tritt explained during a recent call, the unavoidable reality of the current environment of stressed cannabis assets is also a period during which a lot of people will make a fortune as a result of the very pendulum swing of fate that made those assets available to them. It is the immutable law of the jungle, and an opportunity that is inevitably seductive for investors.
Tritt has been investing in cannabis long enough to understand the unique and challenging nature of this industry. “My first investment was through my father’s fund,” he said. “He had invested in 12 companies back in 2014 or 15. I then left my job as a principal and co-founder of a software company and came into the cannabis industry to begin investing. In 2017, I started a fund called Panther Opportunity Fund. My father was one of the partners and there were three other partners.”
His father offered a model in more ways than one. In addition to being an investor, said Tritt, “He also is a physician – an ear, nose, throat doctor. He took the company public and was Chairman/CEO of that company for five years while also practicing medicine. So, I had this very good example of extremely hard work, big vision, and achieving goals. When I got into the cannabis industry, it was necessarily as an investor, but as investors we always would take an active role. We sat on as many boards as we could, and we would help in different ways similar to what we’re doing now. The idea of it came from one of my partners who did investment banking and who also worked for a family office. It was very common for the funds and the families to deploy capital and also provide these platform services, what they call CFO, or in our example, investor relations, helping our portfolio companies be successful by leveraging some core competencies.”
The original idea was to invest and help the companies they invested in, but then his entrepreneurial background and vision kicked in. “I saw that the industry needed help and the companies that we’d invested in needed help,” recalled Tritt. “And in the industry, it’s been hard to find the right type of help, people who will be in it for the collective good and be alongside investors.
“In fact, I had a call with a portfolio company this morning, and he was very appreciative at the end of the call,” he continued. “They’re going through a challenging situation, and I approached it as I always do, by, ‘How can I support you to help you, how can we get through this,’ and not by attacking them. Unfortunately, because of the emotions, most people get frustrated and angry, and then they attack. They don’t have the perspective that I have as an operator of what the realities are running the company. And so, all of that is what fueled Panther. There’s this huge opportunity in the space, and yes, we can be investors and we can help them. At the same time, there are tons of companies that need a lot of help in some key areas. And so, we officially formed The Panther Group in 2020. I was invested in the fund from 2017 to 2019, and then the next iteration for my involvement has been through The Panther Group, which I co-founded with one of my other partners from the fund side.”
Today, Panther continues to employ a two-track business model. “We provide these services in addition to investing in the companies because they needed help,” explained Tritt. “If we don’t give it to them, they may or may not get it, and if they get it from someone, they may or may not be the right fit. We’re not doing everything, but with the areas that we are really good at, we want to provide it as a packaged offering or service. Everyone who’s employed by the company at this point is in support of the advisory services. On the investing side, direct investing is me and any major principles that I bring from this point forward, but everything and everyone is really in support of the investments we make.”
To that end, Tritt’s bio says that he has deployed $40 million across 50 companies since 2014. He gladly broke down the investments by period. “I may mess up the numbers, but from 2015 to 2017, it was roughly $2 million, from 2017 to 2019, it was $8 million, and from 2020 to 2023, it was the difference,” he said. “There’s another fund called Panther Micro Fund, which, with SPVs alongside those investments, was $10 million. In addition to that, there’s been another $20 million deployed into maybe five companies that we put a combination of debt or equity into. One is a vertically integrated company in Maine that we’ve put $7 million into, and another one, in Missouri, is also a vertically integrated company that we put about $3 million into.”
He added that these investments have all been made consistently over the last few years. “It’s not like we stopped investing a year and a half ago or anything like that,” said Tritt. “This all continues to be deployed.”
The sectors Tritt has invested in are also instructive. “The first fund that my dad did was 12 companies, all ancillary companies,” he said, “because in 2015, in Atlanta, Georgia, no one was interested in investing in plant-touching businesses. It was just too risky, so the promise we made was that we wouldn’t invest in companies that touch the plant. Our first investments in the space included companies like Green Flower Media, Canopy Boulder, BDSA, Tradiv, which was the predecessor to Apex Trading, and PayQwick, which is now Green Check Verified. That was the start, and then between 2017 to 2019, we started investing in plant-touching businesses. We had four plant-touching companies, and the rest were ancillary, a lot of software, technology, data, ad tech, ag tech, so a lot of the infrastructure, the generic picks and shovels of the industry.”
The geographical markets also marked an evolution in Panther’s focus. “Geographically, we started on the West Coast and then over time have definitely migrated to the Midwest and to the East Coast a little bit,” he said. “But the Midwest and mid-Atlantic are where we’ll mostly focus our energy, and we’ll have some presence in New York and New Jersey. But for the most part, I’d say the next three years are going to be the Mid-Atlantic and Midwest for us. The Southeast is not really going to be online other than Florida, and New York and New Jersey are such difficult business markets that it creates a really difficult environment in which to operate a business.”
The Distressed Asset Landscape
The Panther Group also recently published a white paper titled “Up in Smoke? A comprehensive guide to managing distressed assets in the cannabis industry.” A few bullet points culled from the guide lay out the changes that have impacted cannabis companies and brands in the United States over time:
- Between 2018 and 2023, the number of cannabis businesses and brands in California has dropped from approximately 6,000 to 2,000.
- Approximately 20% of the active cannabis brands are ripe for mergers and acquisitions and distressed asset acquisition, as they cannot sustain their own inventory, capital requirements and accounts receivables (AR).
- This consolidation as a result of pre-federal legalization is a function of high taxation challenges, supply chain regulations and AR issues.
But why are distressed assets so prevalent, because it sounds as though there are a lot of opportunities out there depending on the market and the situation. I asked Tritt what the distressed cannabis asset landscape looked like from his perspective. “From my perspective, it’s happening, and it seems like cognitive dissonance that it’s going to change,” he said. “I think people are holding on, but at the same time a lot of people are letting go. We’ve seen that and I think we’ll continue to see that. I think the landscape is that it’s going on, we’re seeing it, and operators are fatigued. But it is very situational-dependent.”
Is it also geographically pervasive? “In states like California, it’s sad but it seems like we know what it’s going to look like, and there’s no way that all the operators that got into this are going to realize the success they thought they were going to,” noted Tritt. “Anecdotally, I just heard about an opportunity today, what seems like a very attractive multiple to sell a dispensary in Santa Monica, California. It has stable revenue, but the operator is just tired and wants it to be done. I think we’re at that point where a lot of people are tired and ready to move on, and from an investment standpoint the only capital I can source and get people to put in is around stories where the capital is going towards assets that are undervalued right now.
“That’s where capital wants to be put,” he added. “We believe in the space, we see the opportunity, we know it’s kind of in a downward place, and we’re ready to take advantage of it. We’ll come in and buy into this growth story. But again, it’s acutely around, ‘We need this asset, and we need X amount of money.’ We have a company buying a manufacturing/cultivation asset in Arizona right now. The owners had made tons of money, millions every single year, and now they’re not making that money. So, they’re ready to give it up, and there’s a group that’s willing to come in and buy it for 30 cents on the dollar and put the hard work and have this asset for the next phase of growth. It’s very situational dependent. Does this asset work for us or not? If not, then we’re not going to pay for it. And in a lot of cases, yes, we see value, and the people who are in a position to make those investments are getting great deals. This is where a lot of money is going to be made. It’s like real estate in 2009 and ‘10.”
He had mentioned California, one of the mature markets, and Arizona, but what about fatigue in a state like Massachusetts, for example? “Even in New York and New Jersey, people that have a license, and the [decreased] values that they’re getting for that license,” he offered. “You could look at it as from an M&A perspective. To a certain extent, people are putting in money for a percentage of the company, and everyone across the industry is feeling the pain of values being down. You can only base [value] on reasonable assumptions about what you’re going to get from a cash-flow perspective or a reasonable multiple on cash flow if you have a profitable business.
“I know that there are a lot of people struggling in Massachusetts,” he continued. “It’s not a market that we’re doing anything directly in right now. We were looking at acquiring an asset there six months ago, but we’re not now. So, to a certain extent, there are states on a national level that have become less interesting, because what’s the opportunity in Massachusetts? It’s not much of a growing market. Okay, we can come in and get a piece of the market, and then what? If we can get a great deal, then maybe it makes sense, because we’re paying a little bit and we’re getting a great return. So, to the extent that those come up in my states, I’ll look at it, but as a direct example, we’re not really active in Massachusetts. But I think there are opportunities in New York and New Jersey to get in at a very reasonable price relative to the amount of dollars and time that people have put into their projects to get them to this point.”
What if you are sitting out there as an operator, and yes, you have some anxiety, but you also might be thinking that it’s always darkest before the dawn. What if rescheduling does do away with 280E? At least then you might be in a better position to make a better deal or maybe even survive. Why shouldn’t someone in that situation wait to see if rescheduling happens? “That’s a great question,” responded Tritt. “Honestly, it’s individually dependent. If you can hang on, then yes, the prospect on the other side of rescheduling is definitely better. I don’t know how much better, I don’t know if that’s going to affect every single individual, and I don’t know if that’s going to make the California landscape realistically any better. But it’s going to help cash flow, and so there’s the natural things that operators should look at and say, ‘Okay, if this gets rescheduled, what does my business look like, and what does that realistically allow me to do?
“But honestly, I don’t think it’s going to change the landscape for every single individual across the board,” he added. “I think situationally it would require some assessment, but again, I think it’s a great question and a very serious thing to think about. Can I withstand this for some time? I don’t know when that time is, and they don’t know when that time is. And when you’re tired, it’s every day, so how much longer can you hang on, and I think what we’re seeing is just that. I’m not making it up. People are exhausted. ‘We got in seven, eight years ago, and now what? We don’t even see a path towards anything.’ I don’t want to paint a bleak picture. There’s a lot of optimism for operators, but there’s also people that realistically are in a position where they’re not in a great spot and taking something is maybe better than taking less than something.”
What about people hellbent on not giving up? Is it possible to work your way out of a distressed situation? “You absolutely can,” insisted Tritt, “but at the same time, you have to look realistically at what that effort is going to yield. That would have to be answered specifically for each company, but I do think that it’s worth assessing what do we look like now, what are our options today, and can we dig ourselves out of a hole realistically. There is of course the reality that the same people who dug themselves into a hole may not be able to dig themselves out, or they may not even be able to start thinking in a way that’s required to get them headed in that direction. But if someone is in that spot, then I think it’s okay to ask, ‘What do we do now, can we realistically get this business to the other side, is it worth the effort, and what’s the delta from here to there? Because, getting from a point of distress to non-distress, other than having a business that can maybe be around for a little bit, their options may not be definitive anyway. So, it’s a very case-by-case situation.”
Those must be the sorts of conversations that Tritt is having all the time as a board member and investor. “Exactly,” he said, “and it’s the conversations that we want to have with prospective clients and prospective investments, because everyone is in a different situation. We have companies that have done everything they possibly could during this time in terms of fiscal discipline, and they’re at an okay spot, but not a great spot. And so, those are the types of things we’re looking at and assessing right now.
“But I think the net of it all is that at the end of the day almost every one of these companies needs to combine with another company in order to make it,” he emphasized. “It’s just the math. If we consolidate the space in half, it will be a lot more sustainable as an industry. I’m not saying that’s every case, but conceptually this is something that almost every business needs to look at and seriously ask, ‘What’s my path towards an ultimate exit and return for me and my shareholders,’ and I don’t know that a lot of these operators can get there by themselves.”
If you’re in a situation where you could merge, be acquired, or liquidate, when is one preferable or necessary over the other? “I faced that question just this morning,” said Tritt. “The guy was giving me the scenario of what’s happening, and they’re in a dire situation, but at the same time he’s bullish and excited about what is on the other side. The question is if there’s something to fight for on the other side that’s realistic, and that’s the vision and the perspective that we can give these individual operators. And look, their emotion is at the highest level because of what they put into their business, so having someone be able to step back and say, ‘Look, you’ve got something that’s really interesting,’ or, ‘Look, you don’t have something interesting.’ And if you don’t have anything interesting, then that limits your options, so maybe there’s something to liquidate, or something that someone would acquire. The merging option is when you’ve got something that’s worth something to someone.”
Doesn’t the answer to that question have to come out of a conversation based on absolute reality, because only then can you come to a proper solution? “Yes,” replied Tritt.
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