Andrew Livingston, Director of Economics and Research, Vicente Sederberg LLP
Andrew Livingston serves a unique role as an economist, business analyst, and general cannabis policy wonk in Vicente Sederberg’s Denver office. As Director of Economics and Research, Andrew helps clients develop and expand their enterprise across cannabis markets nationally and internationally. Marijuana and hemp-focused businesses depend on Andrew’s services to navigate regulatory intricacies influencing market dynamics and to create sophisticated revenue models and pro forma for investors and strategic decision making.
https://vicentesederberg.com/people/andrew-livingston/
http://www.weedwonks.com/
http://mjtodaypodcast.com/
andrew@vicentesederberg.com
EPISODE TRANSCRIPT
[00:00:01] You're listening to Thinking Outside the Bud where we speak with entrepreneurs investors thought leaders researchers advocates and policymakers who are finding new and exciting ways for cannabis to positively impact business society and culture. And now, here is your host Business Coach Bruce Eckfeldt.
[00:00:30] Are you a CEO looking to scale your company faster and easier. Checkout Thrive Roundtable thrive combines a moderated peer group mastermind expert one on one coaching access to proven growth tools and a 24/7 support community created by Inc. Award winning CEO and certified scaling up business coach Bruce Eckfeldt. Thrive will help you grow your business more quickly and with less drama. For details on the program visit Eckfeldt.com/thrive. That's E C K F E L D T.com/thrive.
[00:01:02] Welcome, everyone. This is Thinking Outside the Bud, I’m Bruce Eckfeldt. I'm your host. And our guest today is Andrew Livingston. He is director of economics and research for Vicente Sederberg LLP. We're here to talk a little bit about what's going on in the cannabis industry now that we're in the covered 19 pandemic. We're recording this mid-April, April 15th here. And so we're going to talk a little bit about really what's going on on the ground. What are we noticing in terms of trends, in terms of the environment, in terms of sales? I'm going to talk a little bit about what the potential implications are for the cannabis industry in the coming months and quarters as we move into hopefully some type of recovery. And then really, how does this really change the industry changed how business is done, how the cannabis world kind of operates in a post covered scenario. So with that, Andrew, welcome to the program.
[00:01:48] Thank you so much, Bruce, for having me on. It's great to talk to our audience.
[00:01:52] Yeah, so excited about this. I mean, not that I'm excited that we're in COVA 19 and a pandemic, but, you know, I'm excited to talk really about, you know, what does this mean and how is this going to obviously how is industry kind of reacting to things and how is this playing out from an economic point of view? But really, how is it going to reshape the industry? You know, I think there's really going to be some impactful and long lasting things there. So what do we start with little understanding of your role, your background, how you got to cannabis, kind of the work that you do in the cannabis industry and how we can get into some of the topics?
[00:02:20] Absolutely. So at this a Cedarburg, I'm I think kind of a unique role. So I do a lot of the economic analysis, market analysis and kind of detailed policy work for clients in the United States and nationally.
[00:02:34] I've been at vCenter Cedarburg now for over about seven and a half years. So I'm one of the old school people in the cannabis industry. And I came into cannabis as really kind of a movement kid. So, you know, I was super fascinated in drug policy and illegal drug markets in high school. You know, I never participated in that financially. I was interested in them as a as an econ nerd, you know, listening to Marketplace on the way to school with my dad in the morning and then in college. You know, it descended into the rabbit hole of recognizing the war on drugs is, you know, mostly B.S.. And from there, I started a chapter of Students for Sensible Drug Policy, which is an international organization on college campuses across country. And I started that back in about 2008, 2009 or so Colgate University in upstate New York. And then from there, I midway through college, I decided that I was going to like do drug policy reform as a career. And that was before legalization ever happened. And I always thought that I was going to work in the nonprofit world doing policy analysis stuff. But after I graduated, I moved out to Colorado and I worked on the Amendment 64 campaign with Brian Percentage interest in Cedarburg and Josh Kappel and Mason Divert and all the other people on the ground, Steve Fox. And so then from there we won. And I kind of was like, I can't do anything else. I kind of. And the center of the cannabis world right now. Yeah.
[00:03:54] And so I went to every single regulatory working group meeting and took notes for the team and kind of kept that going and kind of segway that into the first non-legal not administrative position at just any Cedarburg back when we were like four or five feet, probably five or six people actually. And now we're like over a hundred. And so I kind of grew with the firm during that time, got into law school and then decided I didn't want to go. I didn't want to do night school because I was having too much fun working. And so I kind of expanded that role over time and now run a ton of different projects, both on the policy side as as well as on the market sides for clients across the country.
[00:04:35] And so what are the questions you're typically kind of asking are looking at relative to the cannabis industry?
[00:04:40] Yes. So typically it's things like, okay, I have a unique extraction technology for infused products. I want to know what states I should deploy my intellectual property in through a license agreement or, you know, which states can I look at this from?
[00:04:58] Actually ownership positions, which states should I go into? So, you know, I know kind of all the different markets, you know, what those look like, what their sizes are and what some of the the regulatory and licensing impediments are. And so I help clients kind of navigate that wilderness. So it's like I'm a I'm like an Amazonian guide for new travelers and even experienced travelers, you know, looking to find their pathway because it's really hard to know what's edible and what's not. And all I do is. Look at all those numbers and look at all the different regulations and how they're shifting and how people find their their way through that wilderness like a mountain God, you know, making sure they don't fall off cliffs and into crevasses and disappear forever.
[00:05:41] That's probably more appropriate in Colorado to be Mountain Guy than Amazonian guide.
[00:05:44] And maybe that's the future when when we expand an energetic practice.
[00:05:48] I love it. So let's talk about what's going on in the cannabis industry. We hit this covert situation. You know, several weeks ago, this order's kind of came down. You know, work from home, shelter in place. Several states declared cannabis central businesses. I guess one state didn't dursleys my understanding as least one state didn't, you know, for adult use, Baidu's. You know, this various situation where companies are kind of still operating. But what are you seeing in terms of actual kind of cannabis sales? Know, the actual kind of flowing of cannabis in the industry? What's your take at this point? Now, that were mid April in the lockdown mode.
[00:06:23] Yes. So I would say things are are both good in some ways and really troubling and difficult in others. You know, it's not just a handful that declared cannabis as essential on the medical side. Almost every single medical cannabis program in the country declared a medical cannabis as essential. And I know of no state that required the closure of their medical cannabis businesses. And the only state that required closure of their adult use cannabis businesses is Massachusetts. And, you know, we're currently in litigation with the state to try to overturn that because they're allowing liquor stores to stay open, but not cannabis. And those businesses were already in a difficult and struggling position before it ever hit. But, you know, that being said, almost pretty much every other state in the country that has cannabis is allowing them to stay open and allowing the storefronts to stay open. Nevada is requiring just delivery. There's a period time. It looks like that was gonna be the case in Colorado. But you are actually able to go to stores now, just has to have some social distancing, limiting the number of people that are inside. So we've seen a few major things happen with cannabis. And first, I'll talk about the regulatory and legal changes and then I'll talk a little bit about the economic effects of that. And so the major thing that we've seen is very fast paced policy innovation on cannabis. And, you know, compared to other things, there's a lot of policy innovation on cannabis because we are a, you know, a new industry and a new policy.
[00:07:42] But as I mentioned, doing this stuff for now for over seven years and the speed at which we saw new states develop new policies, it's astounding to me and feely that provided a ton of optimism on my front. My view is that, you know, rather than requiring the closure or even the temporary closure of some of these businesses, they immediately started switching over to curbside pickup. And so it differs state to state in the same way that cannabis laws different state to state for just about everything. But essentially what you can do is you can call or go online and do a pre order, go to the parking lot, give them a call or text or whatever to find them, notify them somehow. And then you'll either get out of your car, take the payment, make the payment or they'll come to you because you've already made a payment and just provide you the cannabis. In some cases, you know, that has to be actually doorstep in US place that can be on a car. The way I think about it is it's on property, not on licensed premises. And deeply always has to be within camera view. But it's not that hard considering the fact that there is a ton of cameras in and around all of these businesses. So that's really like really awesome.
[00:08:47] Davidson and Days, right? I mean, these yes. They push this through, whereas I mean, I was thinking months and quarters and heaters to get some of this policy put in place. The fact that they were able to, you know, pivot pretty quickly here and add these things to deal with the situation was impressive.
[00:08:59] Very, very impressive. I mean, regulators were dealing with a ton of other concerns. But thankfully, when we've built up these industries in whether it's a place like California or Colorado or other places across the country, we've also built up an entire regulatory bureaucracy that exists solely for this purpose. And so it's not like we just had it. We had to bother other government regulators to figure out what to do. It's like this is their livelihood as well. You know, their raison d'être, like why they're there is to ensure that a regulated cannabis market can continue. That being said, it's really, really wonderful to see. And it's also like it's a part put this in perspective, right. Less than a decade ago, we were illegal use purposes everywhere in the world. Now we are being deemed essential. And so that is it's heartening. And it's really you know, it's always difficult, particularly in these days when things are so stressful and you're dealing with the day to day to take a step back and recognize how far we've come.
[00:09:56] So I'm curious, do you see that as a as a sign of sort of acceptance of cannabis as an important tool for society, or is this more economically driven of, you know, these these states have become dependent or see this as, you know, an important tax revenue stream and therefore, like we need to keep the stuff going because it could really hurt us otherwise. I mean, how do you characterize the speed at which there may be a motivation which by which they're using?
[00:10:20] So I see this as a continued recognition that cannabis truly is medicine. And, you know, we would not have seen states across the country deemed. This is essential. If it were not for the fact that medical cannabis is legal in over 33 different states and is recognized by 90 plus percent of Americans, that it is an essential medical good in the same way your pharmacies are doing some work.
[00:10:47] Just earlier this week, I was looking back on the polls like they stopped polling on medical cannabis because the last time it was polled by Quinnipiac in 2017, it had 94 percent approval. At that time, that was the highest polling. That Quinnipiac had ever done for any issue ever in their history.
[00:11:06] Right. It's like he stopped polling at that point. It's like we know the answer, of course, like 90 plus percent.
[00:11:12] Right. So that, I think, is the recognition there. You know, I don't necessarily think you would have seen cannabis stores close, but you maybe wouldn't have necessarily seen them be deemed as essential as quickly as we saw because of medical cannabis. So that's where I think we are culturally. What we will see as far as your secondary part of that question, like is it because of the economics and the tax? I think that will become apparent in 2021. And I'm and I'm happy to jump in. Do you know where cannabis is moving legislatively? But I do think that a lot of state governments are going to have a ton of trouble balancing their budgets and they're going to be looking towards external streams of revenue, cannabis being essentially the lowest hanging fruit.
[00:11:52] So let's let's talk about sort of where we are, what we're seeing in terms of cannabis sales and how we see really what's happening in the current situation, then kind of talk about what we think is going to be happening in the future. So in terms of actual sales, I mean, you mentioned and are kind of prepped those that we've seen some increase in sales and we've seen some decrease in sales. Give us some color on over the last couple of months. What have we noticed in terms of cannabis sales and the ups and downs?
[00:12:14] Yeah, I mean, so the first thing is that what we know about cannabis sales is usually a lagging indicator. Right. So there are obviously some points tell analytics companies p.d.'s had set which which provide some of that on a more week to week or monthly basis. You know, from the state side, usually we get that month afterwards. Some of the few places that do update weekly Florida as well as Massachusetts. Massachusetts is the only place that stops sales. So that was difficult to know. And when I can tell you from conversations with businesses, from listening to all that had said and B.B.s, analytics webinars that everyone's been doing over the last little while. And then from looking at some of that Florida data is that we saw some pretty massive spikes in the first and second week of March. So as everyone recognized that A, you know, the apocalypse was coming and we looked to shore up our resources and stock up on everything. So, you know, in the same way you go to the supermarket, you see all the toilet paper is gone as you're driving around desperately looking for toilet paper, even if you don't need any, because you're just like there's no toilet paper. So I need to get more toilet, you know, or like all your fruits and vegetables and all your meats and your pasta started to get taken up.
[00:13:24] And so everyone was like panic buying. We saw that same thing with cannabis. People were panic buying their cannabis. And so that created some rushes. You know, I was hearing from businesses that first and second week of March was even higher than the week of 420 at the previous year. That is a pretty significant increase in purchasing behavior. But the real question is, is it an increase in actual demand? Because what we've been seeing in the weeks afterwards is a crash. Marijuana Business Daily had a really good article on this using data from Headset. You know, they were seeing the state of Colorado like a 40 percent decline. Looking at the week over a week for the previous year. You know, why is this a decline? Well, it's probably because people aren't going outside their house to go to stores. Like everyone freaked out and they have cannabis at their house. They're not looking to stock up more because they just bought 200 or 300 dollars worth of weed the week prior. So they're staying home. They're watching Tiger King. They're smoking weed. Now, the question is, are they actually smoking more weed than they would have had otherwise? So there is some research to show that when people have a lot of drug supplies on them, they tend to use more.
[00:14:28] So availability, immediate availability will will tend to promote daily use or, you know, increase consumption.
[00:14:33] Yes, absolutely. You know, furthermore, you know, is is everyone's crippling anxiety also increasing their candidacies possibly is a worry that this is a respiratory virus, increasing their cannabis use. That would probably be a push on the other end. You know, OK, maybe people are buying more edibles or more. But, you know, from from some of those c._d.s and headset webinars in the first, second week of March, we really weren't seeing an increase in edible consumption for a flower. And the data before Massachusetts closed out as well. Some of the data in Florida is showing that people's purchasing behavior is as far as product segmentation is also. And I know I personally went out and got a whole lot of edibles, but that's because I had plenty of flour at my house.
[00:15:13] Interesting. So at this point, the spike that we saw in demand in March has, it sounds like at least averaged out with with a drop. Do we? Do you have a sense of I guess as you're as you're take at this point, it was basically people were hoarding maybe. Consumption rates will have gone up a little bit, but not that there hasn't been this mass. Everyone's getting hired to deal with, you know, covered entities.
[00:15:36] I think that's probably true. One, people are working from home and they've got their kids at home. Exactly. I was thinking about when you can't wake and bake unless you're one of those people who does not have kids and doesn't have the sort of job that prevents them from doing that. But it's like, you know, the reason I can't. I don't have kids, but the reason I can't wake and bake on any random day is because I got to go to work. And so, like, that doesn't matter about whether or not I'm at home or I'm at the office. I just can't do my work where if I'm stoned in the morning. And so I don't know if that necessarily changes. And the people who have a ton of time. You know, right now, you know, whether or not they're laid off, restaurant workers or other individuals who who work for businesses deemed not essential. They're probably worried about financially their pocketbooks. And are they cutting down on their cannabis use because, you know, they're looking to save money. So I think that's a larger question. Reality is that we will not know exactly how this impacted demand until we have really data going through probably May. And so we'll know more about this in the summer and we'll be really be able to assess, OK, what happened, what happened across the country, what happened on a week to week basis. I mean, how does this compare to previous years?
[00:16:47] I'm curious, have you seen any debt or looked at any data of, you know, in other times of of general economic hardship, you know, downturns in the economy. You know, disasters, things like that and consumption of alcohol or other kinds of, you know, substances like like this, you know, that if there's any correlations in terms of use or price points or, you know, anything that is comparable or is this is the situation so unique that it's really tough to do any kind of comparison to previous events?
[00:17:16] So, you know, I have been looking at how alcohol sells or whether during the Great Recession and talked about that a little bit.
[00:17:23] But I do want to mention afterwards that this is unique. And I know you talk a little bit about why this specific disaster is unique. So with alcohol, there are some studies that showed that demand didn't really drop in certain segments. It increased. So basically amongst those heavier drinkers, their use increased in frequency and volume. And amongst those who didn't really consume that much alcohol, it dropped a little bit, but not a huge amount. And on net, the increase was slight, probably not at the same speed of rate that it was prior. But, you know, alcohol did not crash in the same way. You know, demand for lots of other goods and services declined during the Great Recession. So on that side of things you look at and you go, OK, well, Vice's if people want to call cannabis that, you know, it's both medicine for some advice or a recreational intoxicate for others, you know, they tend to do fine during recessions because when people are cutting down is they're spending on vacations or they're spending on travel and things like that and not necessarily like what they're using as a nighttime stress reliever. But this is this is a different issue than the Great Recession.
[00:18:31] And the reason this is different is that, you know, the Great Recession, it was a market correction due to its problematic housing bubble, speculative lending and then bad financial instruments with more mortgage backed securities. Right. That blew everything up and dried up lending and pretty significantly, you know, obviously caused some major financial institutions to go to business. It also wrecked the stock market. And so for people who had a lot of money invested, you know, they were looking to spend less because their total their total net worth dropped precipitously.
[00:19:05] Their nest eggs disappeared poss..
[00:19:08] But if you had money, you could still go out to the supermarket and still go out to the movies and still go and travel. And it wasn't a big issue. Right. There are people who, you know, they had their investments lined up in a different sort of place and they were like, sweet. I'm going to go out and buy houses right now because they're all dropping and, you know, looking at at it, you know, a decade later. Like those people did. Great. Was vulture investors are able to go ahead and buy those assets. Sure, that might be possible nowadays. But like no one's doing door to door looking at properties to pick them up and doing house hunting because everyone's trying to stay inside. This is unique because it's a declining demand across the board, not because people necessarily don't have the money. Eventually, they won't have the money because we're seeing unemployment at record high rates and the markets aren't doing great. But people aren't spending because they can't physically do that. And so it's very different. Like I would go to the movies if I could, but I can't. I'd go get a haircut if I could, but I can't. And so my changes in demand and a ton of other individuals who are still working from home, they would love to go out and spend as they normally do. We just physically can't. And so that is going to change the scope and the effect and really the intensity of this recession as compared to previous ones.
[00:20:26] Yeah, I'm Kirsan on the. If you've seen any data or any indications of the black market side of cannabis, you know, is there any.
[00:20:35] There's always this kind of interplay between, you know, the legal market and the black market. Do you see any indicators about changing? You use see black market or changes in the black market. You know, as saying shut down or it's harder to get. And, you know, people are price conscious. Is there any any signs or any data that been able to see on that?
[00:20:52] I have not seen any any of that data yet. So, you know, on the flip side, usually not a huge amount of data on illicit markets, particularly in real time.
[00:21:00] You know, I was talking to some of the friends and colleagues out in New York and I say, you know, ah, the ah, the bicycle messenger is still deliver it. And they say, yeah, they are like, you know, they're doing like essentially like a storefront pickup. Right. So I come to your door like you do on this. I want to have the guys inside anymore. You know, they're wearing gloves. Some were wearing masks, things like that. But those guys are still delivering. Oh, good. I did talk to spread this. You know, for the first time ever, my drug dealer was like, yeah, can we just use Venmo at this point? This right is just like risk to risk scenario. Other like, okay. You know that you can't write movie tickets because like now it's gone. The movie has got to be like groceries or something. Yeah. So that's difficult. But you know, places like Massachusetts, of course, it's going to increase pretty significantly because they're closing their adult stores. But, you know, so much of their market was already in the illicit side because they've only have was like forty five different retail stores open on the adult use part of their market. And then I think honestly, it's a little bit, too, for the states that have robust cannabis market.
[00:22:00] I think we're still seeing people smoking through their supplies. And so the real question is, in April before 420, they want to get high on their, you know, Zoom's smoke sesh with friends. Do they go out to the stores again to restock or do they still have enough left over for the beginning of March?
[00:22:16] What's your guess, you think? I mean, does it 420 is always a big bump, right? Everyone everyone goes and stocks up for 20. Do you think we're going to see a big spike in demand or you think people are basically either have their stock or they're just not going to smoke as much?
[00:22:26] I think that you will see a spike in use. I don't know whether or not that will play out in the same sort of ways at the stores. It's partially that that people buy a ton of weed during 4/20 because that's when they give these great deals. The question is, is, are those businesses going to give the same great deals? One, they're all suffering financially or at least are worried about it and they don't wanna cut their margins that much water or increase volume. And plus, there's a there's the other question of is increasing volume of sales actually a good idea when it's harder for you to maintain your supply chains? Because whether or not you're vertically integrated or not, manufacturers, cultivators like they're having a lot of employees call out either cause they're sick or they're worried about getting sick. So I don't think you'll see the same price rush in demand at the storefronts.
[00:23:12] So let's talk a little bit about where we think this is going or what the kind of longer term impacts of this. So, you know, we'll be in kind of lockdown mode for some period of time and we can kind of speculate on exactly when they will start to get lifted, how that will lift and, you know, kind of phasing and things. But we're going to have some ongoing restrictions on what's going to happen to some of these companies, to the market supply chain in the cannabis industry as time stretches on, as this impact becomes more extended. What do you think the impacts are going to be to the industry?
[00:23:40] Going to be serious and it's going to be difficult.
[00:23:44] So first and foremost, a lot of the cannabis businesses have been operating at slim margins because of the regulatory costs, because of the debt that they have to service the high interest rates on that debt, because, you know, they didn't necessarily think that these markets would roll out as slowly as they are. And so the larger question is, if demand drops, let's say 80 percent, you know, only just trying present 80 percent of its normal cause, you know, your restaurant workers and your barbershop cleaners and, you know, other sorts of people that worked in what's deemed non-essential services. If they don't have the money to buy the same matter we did used to. And a lot of those people are cannabis consumers. Right. People in the restaurant industry. And if they can't buy in the same way, can you keep all the assets that you had previously or are you gonna have to start shutting down certain stores, laying off certain staff? And I think that's a real risk going forward. We're already starting to see it. Certainly the cultivation, manufacturing and in a larger aspect is cannabis businesses can't access these federal loans and on these federal relief programs in the same way other businesses can now.
[00:24:51] So then this is because they're they're dealing cannabis federally legal. So the federal funds have been you know, they can't apply to can't use the federal funds because they're dealing in illegal business.
[00:24:59] There's some of this money is being allocated to states. And there's some speculation that some of this money that goes to the states could be allocated for counties business. Have you seen anything, any indicators that states might be willing to provide cannabis businesses, you know, similar types of programs in terms of, you know, payrolls and, you know, loans, low interest loans, disaster loans and things like that.
[00:25:18] So, you know, there are some programs. They're not there in New York or California that are looking to provide pots of money to businesses for these purposes. So you.
[00:25:28] Quickly, with those programs, federal at the state level are are financial backing and securitization to banks making loans, making small business loans. So first and foremost, you have to work with a local bank if you have a local bank relationship and you get a loan from that. And so there's a real question of whether that even happened outside of the situation. And I think that makes it unlikely. But, you know, there are some pots of money. But, you know, the states have to balance their budgets and they have a lot smaller budgets that the federal government does. And so, by and large, the answer is probably not know. You're not going to see that sort of money at the state level looking to really save these businesses. You know, I've been talking to people at Marijuana Policy Project, talking to people at LAWFIRM Individuals CTF about maybe we should consider re-allocating, if possible, some of the cannabis tax revenue to subsidize the payrolls of some of these businesses that are dropping out. And, you know, I think that that's a great idea and concept. I don't know if state governments are going to act in that sort of way. And also, you typically will require legislative action and legislatures just aren't meeting right now.
[00:26:33] Know there's a system that needs to operate as not it's not operating at this point. So these companies are going to be under financial pressure. You know, margins already thin demand goes down. They, you know, aren't able to make a profit. You know, that causes financial distress. What happens in this case? I mean, you know, in normal markets, there would be things we consolidate. You would get bought up. You would you know, people would come in and find under, you know, distressed assets and read, rightsize them and bring them back to life, corporate them, dollar businesses. But, you know, cannabis, you know, it's got some interesting twists. We would. How do you see this playing out or what do you think? What are the challenges to normal kind of dealing with companies in that situation when you're dealing with accountants?
[00:27:13] And so I think there will be some businesses that go out of business and go and buy. Some of this will happen in markets where there's not a limited number of licenses like places like Colorado. This might also happen in places like California, where there's not a limited number of licenses. If you're not it's not a specific retail license. It's in a valuable area, even in states where they have a limited number of licenses. We've already started to see the first businesses go under and not be purchased. So there is a retailer that had two different retail stores in the state of Iowa, which is a small, low THC medical cannabis program.
[00:27:46] But still there a lot of businesses that paid tens of thousands of dollars to consultants to get those licenses back when they were issued a few years ago. And no one bought them up because they looked and they said, are all the Iowa market is not great. And one of the businesses was looking to buy it up, but they already had a handful of stores and the regulatory agency in Iowa wasn't going to okay them to become, you know, essentially a monopoly in a state or close to it. And so, you know, I think you might see this in some in some programs, limited programs, medical programs in the Northeast where the markets aren't great anyway. They have trouble staying in business. And this will probably less so on demand, more so on the you know, there are a ton of cannabis companies that have been relying on capital in order to continue their runway. They thought they would need, you know, after their build out of tens of millions of dollars, they thought they'd need maybe like, you know, a few million to a runway until they reach profitability. And what they're realizing is now they actually need high single digit millions or low double digit millions to keep running. And the way that they've built their business, one is because, you know, they built their business on operating margins that are problematic, too. It's that the rollout of a lot of these programs is not as as robust as some of them were expecting. And so when you keep going back to the well to get more water and more capital, the question is right now everything's dried up. So you go back for more investment. You just can't you know, you're also paying you're taking debt to pay off your previous debt. And that doesn't put you in a good situation.
[00:29:12] That only lasted so long.
[00:29:14] And so the question then is, OK, you're in a distressed situation and you're looking to just sell your assets and know who's going to buy up, you know, marijuana retail store in New Hampshire or a pharmaceutical processor that hasn't even started in Virginia. Normally you'd say, oh, one of these big msra is that's super well-capitalized and has a ton of resources to expand their reach. You know, this is the business line there and those businesses aren't doing very well and they're not looking to spend the limited amount of capital that they have, cash that they have on hand to buy up additional assets that are going to cost them more money. You know, they're all looking to restructure and shrink into their core markets. And so I think that some of these businesses will go under or they may just be purchased, you know, pennies on the dollar by venture capital firm that has the money and it doesn't have other sorts of cannabis assets that would prevent them from being kind of conflicted out based upon license cap numbers. Because that's also really important to consider, is that in a lot of these days, you can't have more than three stores, you can't of more than five stores. And if you're already are multi-state operator that's in that state, you may be prevented from from acquiring that other business.
[00:30:20] You know, just the regulatory context may prevent you from doing it, even if it is a good financial decision, business and such. There's limits in place. Absolutely.
[00:30:27] Terms of, I guess, customer behavior. Consumer behavior. What do you think might change more permanently? I mean, you know, we're doing all this curbside pick up, this kind of ordering online and a change in purchase behavior, how it actually kind of operates my consumer customer experience, point of view, consumer point of view. What do you think might stick? What do you think is going to change?
[00:30:46] I mean, how how much of this is temporary and how might it really reshape how the cannabis market works from a customer experience?
[00:30:52] So my hope is that some of the good policies that were implemented during cokehead and aren't necessarily only important for for when you have a social distancing required pandemic, you know, stay as policies on the books. So things like curbside pickup. Right. You know, there's obviously benefits of not having to leave your car, but the benefits there aren't huge between picking it up outside the premises or outside the door versus like, you know, secure a waiting room. Right. Like, if you have to go inside, you can pay cash whenever you like. You know, I think that that's probably something we'll start to see after all this is done. There's curbside pickup options start to be like lobby side pick up option or still, you know, inside the physical premises, just from a security perspective makes more sense. But online pre-ordering and online sales are choosie beneficial, particularly when it comes to the way that a business facilitates their click through purchase process. Right. You want someone to be able to log on, have their credit card or their debit card, whatever logged into your system, go through the menu options, click, click, click, checkout and be done. Right. And you to be able to charge their card at that time because all these online pre-order, as you click a click, you reserve inventory, but you don't actually get payment until they come up. And that's a problem for a number of different reasons. And so I think that some of those online preorders will turn into online sales after covered, and that would be a boon to businesses. We haven't seen a ton of business as ton of states implement delivery programs that didn't previously have them. We're seeing that now in Washington, D.C. was just announced yesterday in the Delaware and Louisiana. Two very small medical cannabis programs kind of expanded existing limitations they had on the books for delivery. But, you know, delivery in a state like Colorado was moving forward anyway. You know, adult useful starting to does 21. But we haven't seen that timeline expedited through emergency rules or executive orders.
[00:32:47] And do you see any changes in either product types? You know, the flour versus edibles or other types of adjustables and d-pad or price points or I mean, do you see it? Do you predict any sort of shifts in that either in terms of volume, in terms of, you know, where consumers are focusing or putting their money into it?
[00:33:03] I don't think we'll see long, long term repercussions because specifically direct impacts of it. So we started to see the concentrate market bounce back after the rape crisis at the end of the summer in the fall. And I think that's because once that all settled down and once everyone realized that this was actually just illegal black market cartridges anyway, that they were comfortable buying the regulated cartridges from their store fronts again.
[00:33:27] And as far as has how this impacts consumers, the real question is to me is what are the new policies that happened because states the tax revenue and everyone's recognizing that we need to be social again. And so what I hope is that what we see is emergence of cannabis, social use. We're already seeing, you know, states start to experiment with this, whether that's Colorado or California or Alaska or other states looking to open social use venues. But I think, you know, hopefully there'll be a renaissance of that when everyone is like, you know, tired of being in their house. And the two days, 21 session, everyone's looking for more business, more or more businesses to come in. You know, there's gonna be retail stores that are gonna close, are gonna be restaurants and are going to close. And maybe they say, you know, we'll help restaurants come into power is that you can sell food, but also you can charge at the door because now you can, you know, smoke weed or vape or have an edible in your restaurant. And I hope that legislators will be more accommodating to that because of the catastrophe we're all living through now. And if that happens, OK, you might be able to drink a cannabis beverage or vaporize inside, but maybe not smoke. And so that will shift to consumer preferences just because it will limit smoking opportunities inside. And so we could see long term repercussions there. But that's kind of second order effects.
[00:34:43] Yeah, make sense. And there's been a pleasure if people want to find out more about you, about the work that you do. Efficent a Zetterberg. What's the best way to get that information?
[00:34:51] Sure. So there's few things. First, you can call our office at any SEABURG. You can go onto the Web site. You find me. My name's Andrew Livingston. And shoot me an email. My emails. Just Andrew at 4 sent a Cedarburg dot com. Another thing is that I'm a regular on two other podcasts. So the podcast we'd wonks of which I'm a co-host on and usually peire about once, once a week, once every other week or so we dive deep in to cannabis policy and regulatory effects. And then I'm also a regular guest who's about once a month on the long growing Marijuana Business Policy podcast. Marijuana today, it's one of the larger candidates, business policy podcasts. And, you know, we talk everything about the movement. We talk about, you know, what's going on week to week and the news of the day. And I usually am on that podcast about once a month.
[00:35:41] Awesome. I'll make sure that the links are in the show notes here so people can click through and get that information. Andrew, then, a pleasure. Thank you so much for taking some time today. I'd be curious to stay in touch as this all plays out and see how cannabis shapes itself in the coming months and quarters. But I really appreciate the time. It was a pleasure speaking with you.
[00:35:57] Thank you so much. Bruce is a real awesome conversation and looking forward to, you know, being colleagues now.
[00:36:01] You've been listening to Thinking Outside the Bud with Business Coach Bruce Eckfeldt to find a full list of podcast episodes. Download the tools and worksheets and access other great content. Visit the Web site at thinkingoutsidethebud.com. And don't forget to sign up for the free newsletter at thinkingoutsidethebud.com/newsletter.