CFN Media Exclusive Interview with Altitude Investment Management
February 11th, 2020
In the rapidly expanding cannabis industry, innovation is happening every day. Helping to connect investors with emerging companies in the space, Altitude Investment Management is growing the global mariijuana marketplace one groundbreaking business at a time. Founded by a team of financial experts with a passion for the plant, the firm has already made a significant impact through its work with heavy hitting brands such as Canndescent, PathogenDx, Würk, Sunderstorm, and Loudpack.
CFN Media recently spoke with Altitude Investment Management Founding Partner Roderick Stephan about the history of the group, the state of cannabis investments, and what’s ahead for the industry as a whole.
CFN: How did Altitude Investment Management come to be?
Rod Stephan: Well, the journey for all of us, being financial people in our careers, was really driven by the opportunity set the cannabis marketplace offered. I and several of my partners come from the distressed investments space and we’ve had our whole careers in that marketplace, where generally speaking, there’s wide bid/ask spreads.
If you dig deep and get an edge, you can make outsized returns. So, first and foremost we saw a great opportunity in this massively growing marketplace where there was an early mover advantage and we wanted to finance those companies and management teams that were going to take advantage of the situation and grow to become leaders in the industry. That’s the first thing.
The second thing is that I have had a personal family member who actually had cancer and she passed away and it was only to the use of cannabis that she relieved her pain. She was also mentally alert and did not have to use a morphine port. So, about five years ago I became committed to changing my career path a little bit and starting this venture capital fund together with my partners.
CFN: Where do you see the cannabis markets heading in 2020?
RS: One has to understand the history of the cannabis marketplace to really answer that question. Because Canada was the first large country to legalize cannabis, it became the focus of the world and the public markets got a lot of attention and a lot of capital chasing a few listed companies.
Those companies got massively overpriced. They were priced to perfection and everybody looked upon those public companies as the barometer for the entire industry. Since that has happened, the US marketplace has gone through somewhat of deregulation as you know, as the dominoes fall in each state. And as a function of that, we’ve got more and more multi-state operators (MSOs) that have also gone public.
The Canadian market I think still remains rather fully priced based upon the near term outlook. This includes the slow speed with which they’re growing retail, the problems they have with packaging and moving into edibles with different regulations in each province, et cetera, et cetera.
Whereby in the US, the MSOs are growing and expanding their footprint into new states, particularly in the East, there is not as much of a large legacy illegal marketplace. So, 39 million people in Canada, way over 300 million people in the United States. There’s a lot of room for growth and I think we’re going to see the MSOs in the US catapult forward in terms of market capitalization as compared to the Canadians.
CFN: What about Europe? There’s a lot of buzz there.
RS: I spent 20 years of my life in Europe and I’m focused on building out our European operations. It’s a very immature and fragmented cannabis market in Europe. The supply chain is not all that developed and it is very opportunistic for those players that can get there and are able to put together businesses that make sense. And that means having a local presence as well as the knowledge transfer that we are able to transfer for instance from North America, which is about four or five years ahead of Europe.
One of the interesting things about the European marketplace though is the wellness market also known as CBD market. It’s fast moving consumer goods (FMCG), it’s consumer products, pretty much seen in a lot of big box stores throughout all of Europe. There are no dispensaries, there’s no adult use.
There is medical marijuana which is really approved by doctors distributed through pharmacies. Up until now, the European model is much more clearly differentiated between, the CBD wellness and the medical. And the medical is really going to grow over time with proof of safety and advocacy, similar to FDA phase one, two and three – some of the way Epidiolex has been approved in the UK.
So we do see Europe as a great opportunity set for us and we aim to take advantage of this by investing across the supply chain. We are taking more material ownership percentages in foundational companies in Europe as compared to North America, because they’re not as expensive and we become more actively involved at the board level to create a value for shareholders.
CFN: What advice do you have for cannabis investors?
RS: I would say first and foremost, don’t get swayed by what the taxi drivers are telling you to do and the like. There are bubbles and bubbles exist all the time. They come and they go.
The bottom line is that the cannabis industry and any cannabis company is at the end of the day a company. It has to produce revenues, it has to produce cash flows ultimately to have any value for shareholders.
The largest Canadian LP, Canopy Growth, recently stated that they will be cash flow positive in four years. So I think what we’re seeing with a lot of companies is that it is a lot harder to get revenues. It takes a lot longer to get your costs under control, to show a positive cash flow. So my advice would be to do your work and do your due diligence if you can’t use professional investment managers who can do that for you.
CFN: What’s ahead for Altitude?
RS: Altitude is looking at having a first close on our second fund, which is a much larger fund than our first one and we’re going to use that capital to finance the growth stage of companies. Our first fund is really more to fund startups and entrepreneurs who had a vision and we’re just starting to build it out in the growth phase. These are companies with proven revenue models that are looking to expand either the product suite or services or they’re looking to expand geographically what they’ve already proven is a viable business model.
That’s predominantly the use of fund two. Although I must say in Europe and in other fledgling markets that are years behind, there will be some earlier stage companies that we would also finance. So that’s what our plans are for 2020.
I think one of the key things that we like to do given that we’re already in about 22 companies, is leverage the knowledge and experience and the context across the cannabis geography as well as across the supply chain.
Not a day goes by that I’m not putting one of my companies in contact with somebody such that one plus one is going to equal three and I think that’s one of the things when you invest with a niche, it doesn’t manage like Altitude. We’re able to bring parties together, suppliers and customers together with manufacturers or buyers as well as IP distribution, formulation creation, and all kinds of things we’re able to put together to help our companies not only with capital but also with knowledge and connections.
CFN: What else should our readers know about Altitude?
RS: We’re one of the pioneers in the industry. My partners and I all come from institutional management backgrounds. Therefore, we tried to bring the best practices of our careers into investment management within the cannabis space. So, we’ve been called the grownups in the room a few times.
With respect to cannabis in 2020, I think we’re going to see consolidation in the industry where there’s going to be mergers and acquisitions where some of the weaker players are going to be taken over. And that consolidation, like in any industry, is going to be very good for the industry. It’s going to lay the seeds for the future becomers and leaders of the industry.
So, notwithstanding my outlook, particularly for Canadian equities, it isn’t all that rosy. I do think there’s a lot of opportunities there in Europe as well as in US MSOs. I would continue to look carefully at investment opportunities and unfortunately I think people have to be a lot more rigorous now to get into the cannabis space than two years ago, where if you bought any Canadian public and just waited, it would go up.
Now you have to really dig deep and as I alluded to earlier, that’s where the professional management comes in, because you can’t just buy in a hype. There has to be substance behind it.
*Interview has been edited for clarity.
This article was published by CFN Enterprises Inc. (OTCQB: CNFN), owner and operator of CFN Media, the industry’s leading agency and digital financial media network dedicated to the burgeoning CBD and legal cannabis industries. Call +1 (833) 420-CNFN for more information.
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