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Rob Sechrist | Pelorus Equity Group

December 01, 2022

Rob Sechrist | Pelorus Equity Group
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On today’s show, Scott sits down with Rob Sechrist, President of Pelorus Equity Group and Co-Manager of the Pelorus Fund (a cannabis-use CRE mortgage REIT). Rob has more than twenty years of experience in the real estate finance industry. Since the formation of Pelorus in 2010, he has raised more than $500,000,000 in secured real estate transactions. 

Rob’s primary role at Pelorus Equity Group is developing strategic alliances with private and institutional investors, forming equity partnerships, and coordinating the company’s growth into new markets. 

Today Pelorus funds millions a month primarily using the Pelorus Fund or syndications with family offices and other various debt and equity partnerships. Rob earned a BA from San Diego State University. Licenses include California Real Estate Broker’s License, NMLS License, and designated expert witness as an asset-based lender. He is also the CEO of JRS Capital USA, Inc., a real estate and technology investment firm based out of Newport Beach, California.

Thank you to Rob Sechrist of Pelorus Equity Group for coming on the show.

To learn more about Rob Sechrist and the Pelorus Equity Group, visit:
https://pelorusequitygroup.com/

To learn more about the Panther Group, visit:
thepanthergroup.co

Transcript

Michaela Petrone  0:05  
Welcome to joint ventures, a podcast where we delve into the cannabis investment landscape through the lens of investors and operators who helped fuel the growth of the cannabis industry.

Scott Berman  0:17  
Good afternoon. Today's guests on the joint ventures podcast is my friend Rob Sechrist. He's the CO founding president of the pillars equity group. They are a cannabis use CR e private mortgage REIT. We're really excited to have Rob here. The pylorus group has done about 70 transactions worth over $500 million. They were one of the first dedicated lenders in the space. They lend a lot of money across the entire ecosystem. And they have a great story to tell and we're excited to present today's interview with Rob. Good afternoon, everyone. Welcome to the joint ventures podcast. I am delighted to have my guests Rob secrets today from the Polaris equity group. Hey Rob, how's it going? Thanks for joining me.

Rob Sechrist  1:03  
I'm doing well. Thanks for having me today.

Scott Berman  1:05  
Awesome. So I wanted to start off by just getting a bit about your background and how you ended up in the cannabis space. What led you to this moment in time?

Rob Sechrist  1:14  
Well, we were value add bridge lenders lending to fix and foot commercial multifamily hospitality, doing all kinds of transactions for the last several decades. Collectively, the principles of this company have done more than 5000 transactions for more than $5 billion. And so our local congressman is a guy named Dana Rohrabacher and Dana Rohrabacher passed the most consequential cannabis legislation, in our opinion in 2014, which was at the time the stand alone amendment that defended the Department of Justice for prosecuting any cannabis related business and medically licensed state. When that passed, we realized that this was the largest newly created asset class in which it was a specialty US property that the feds could not pursue the tenants. And so we now felt comfortable leaning in with our skill set to reposition and or build out any of the properties across the country that are going to be for owners of properties with cannabis use tenants. And so that's the short story of how we got here. You know, it's been it's been a fun ride.

Scott Berman  2:19  
And you guys are probably one of the first dedicated lenders in the space. Tell me about some of the things that you've done in the last few years.

Rob Sechrist  2:26  
Yeah, so we, we, we originated our first cannabis use transaction in 2016. Since that time, we've done 72 transactions for over half a billion dollars. And, you know, we first you know, close our first transaction, then we launched 100 million fund in 2018. Then we upsize that fund to a quarter of a billion dollars and convert it to a private mortgage REIT. Then we got investment grade rated, and we brought in an institutional investors into our unsecured bond offering, and then we upsize that offering to a billion dollar. So that's where we're at today.

Scott Berman  3:05  
That's awesome. And that's quite a bit bigger than almost anybody in this space. So it's really fantastic. And you know, what we want to do in this podcast, too, is educate investors on why these are really excellent investments. So could you go into a little more detail on the private mortgage REIT and how it works and why it's a solid investment?

Rob Sechrist  3:25  
Yeah, so I like to make sure that I decouple an equity REIT from a mortgage REIT because most people are only familiar with the word REIT and they don't realize there's more than one type, there's basically two, the most traditional REIT is an equity REIT where they own the property that would be similar to IPR. They cash out the borrower 100% day day one and free up all that cash for them, but they've also given up their asset. And they are also they get a creative value add as the property's value increases. But conversely, they have the first dollar loss if there was ever a devaluation in a property. And so we are a mortgage REIT in a mortgage REIT, we just simply get the tax benefits of a REIT. But we do not own the properties. In our opinion, it's a lot further in on the risk profile, we make the borrowers come in with 4025 to 40% of equity 25% If it's our fully stabilized, and 40%, if it's our bridge lending product, and so you would have to burn through all their equity. And then, you know, before we would ever take a loss and in addition to that we have personal corporate guarantees on our loan. So it's much further in on the risk tolerance and you know, we don't get a creative value add to our loans that are put out that loan is going to be paid out at the same price. But we have a significantly you know, a very high yield in the in the double digits typically 12 to 15%. We've done 15 For every year we've been in full operation. This year, we'll hit about 12 from from some cash drag we had from some large transactions, but the benefits of the REIT for all REITs are you you get a qualified REIT dividend in that Reed dividend is taxed at a different rate is a 20% reduction in the tax rate on that income as opposed to a traditional fund. So when you're such a high yield fund like us, just that 20% reduction in that tax rate can be significant could be a couple of extra points right there alone. And then probably almost or even more importantly, is that your state taxes are only paid in the state in the state that the investor is domiciled, regardless of where the income is being derived. That is massive. So the people that are in no tax states are getting to get that, that benefit of being in those states. So we probably have more than 50% of our investors in low tech states. And the last benefit is that there's no UBI, it cleanses ubti, from the REIT destructure. So those are the three main benefits.

Scott Berman  5:45  
So and I think that you also mentioned that you can cater to individual as well as institutional investors. And knowing the difference in that profile.

Rob Sechrist  5:56  
So our fund is structured with the back end to support retail investors. So we we knew that that was the you know, the holy grail is to have retail investors. And that's the most important, that's the target. But you also need those institutional investors in that size and scale as well. And so we built the backend to handle that in how we do our monthly distributions and reinvestment and all the things that we do are very retail investor friendly.

Scott Berman  6:23  
And so Okay, and so what what is the longer term outlook for both the institutional or the private investor? Like, is there a difference? Or are they headed trends the same?

Rob Sechrist  6:35  
It's interesting, well, you know, so first of all, we're an evergreen fund. And so investors can come in and come out, you know, after the six month lockup whenever, whenever they want. So that it's not like they're frozen up in here, and an equity fund that is got a five year or 10, year lockup or something like that. So there's monthly distributions coming out all the time. So I would say that the difference between the retail in the in the institutional size check riders, it's just interesting, like the retail investors during COVID, were the first movers piling a lot of cash when there was a lot of volatility in the stock market, back then, many, many investors just didn't want to go through the cycle of the ups and downs of the stock market. And so a lot of people I believe, had cashed out to have maximum liquidity for their family before, you know, and then they realized, Okay, I've got this money, I probably had to sell a little bit of a discount, I don't want to go through that, again, I'm gonna go into an alternative that has no volatility and share price. And so we got an enormous amount of capital in that year, which was totally, we didn't forecast that. Now, interestingly enough, I think it retail investors are mainly in I think most people are more in the securities, the publicly traded, and they're not sure where the economy is going. And so I think they're all hesitant to do anything. And so we're not seeing the same amount of inflows at this time as we did, but the institutional 's now are looking for cash flow. And so those bigger check riders now are leaning in a lot more than they were back then. So it's interesting that they do have a little bit of a different outlook. And I think for the individuals, I think that it's more that they're, they're not really sure what's going to happen in the future, but also to bring the liquidity this time, that's different from 2020, during COVID, they would have to sell in this time, they're not for they're not selling, they didn't already sell so they'd have to sell at a discount. And I think that they're trying to just wait out the market to not have to do that.

Scott Berman  8:27  
Yeah, I think the liquidity factor is huge. And the and the disbursements are really attractive for investors. How is this in when you're doing this in the past as compared to the cannabis space? What are the similarities and differences. So the way this is evolving? So

Rob Sechrist  8:43  
the way I'm going to compare this to the non cannabis, as opposed to the cannabis. So cannabis is a very specialty use type property, it's built special purpose built for cannabis use, whatever that might be. It requires licensing, it requires a build out, it requires a very expensive build up, but you're can generate 10 to 15 times more revenue out of that facility to a comparable non cannabis tenant in the same building. And so in one month, you could do with the whole same amount of business that you did with a non cannabis but the build out of that is enormous. And so you got to make a big capital investment. So I think that the biggest thing that people miss is in when they talk about cannabis real estate is that it's special to use. Specialty uses a very specific type of underwriting it is you really have to understand the sector and know all the data points of how you're underwriting. We looked at replacement costs when we land off when we establish our lending basis. So we solely look at replacement cost of the real estate. However, we do tie up the cannabis operator the tenants license, but we don't get that new value. Now, those licenses might be worth as little as 50 to 250,000 in California, but they could be worth as much as 50 million in New York or in full Where to, but we wouldn't give that any value. And the reason that we do that, in the event that we ever did have to foreclose and reposition a property, the amount of time that it takes to get that new license attached to that property is lost revenue. If we can have that license, we can immediately put in a new tenant, reposition whatever it needs to be done for that particular person. And we can shorten that window down from a 12 month period of time to maybe 90 days to get that that kind of cash flowing again.

Scott Berman  10:26  
And okay, and then as far as where you're operating now, and I imagine each State operates a little bit differently. And so you've done 72 transactions, can you give us a flavor of the the locations and the type of deals that are most important to you guys? Sure. So

Rob Sechrist  10:42  
we're willing to go in any state, we're not hunting for specific states to get those a footprint down there. It's different when you're a debt provider, as opposed to an equity provider. So equity, the companies are trying to get market share. For us, we're looking for the best deals anywhere in the country. So we're not we're not really trying to force something today, we just closed last week, the terrassen transaction, which we entered into two new states, that transaction was for about 46 million to terrassen, a publicly traded MSO, we really liked the assets, we like the operator that was in Maryland and New Jersey. So those are two new states for us. But we're willing to go to any of the states both limited license and unlimited license. In our view, if you can't lend in the entire country, if you can only lend in limited license states, there's there might be an issue with that philosophy, because any Limited License state, eventually is going to have more competition, if even if they never issued any more state licenses at some point, whether it's this administration or the next or the administration, or that we'll probably get some form of interstate commerce crossing state lines, and or state compacts that will now reduce the value of those licenses. So we just don't believe that that's a sustainable way to look at the transactions.

Scott Berman  11:57  
Yeah, I also am fascinated by the I'm from the East Coast. So I like when things are heading this way. You know, there's a lot of new people getting into the space here, a lot of new states coming online. And that provides a lot more opportunity for you guys to enter into the newer markets.

Rob Sechrist  12:14  
Yeah, we're I mean, we're so our skill set originally came from building assets, providing construction loans. So we've really got that refined and compete with with any of the best companies in the country prior to entering into the cannabis sector. And so that skill set really helps us expedite and get that asset built faster than a traditional lender or bank would be able to do it. And even our peers. And so that's a massive competitive advantage for us. And then we last year, we rolled out our fully stabilized products. So that now once these assets are completely built now that we can keep them on our balance sheet and move them into a fully stabilized loan product. Yeah, that's

Scott Berman  12:50  
awesome. And by the way, $500 million, that's huge. I don't know many people that have done that in this space, I think you guys are clearly one of the leaders.

Rob Sechrist  12:59  
Well, thank you, we're we should be in the so we've done that 513 million, we've got about 370 million assets under management. Another important point is we've had 37 payoffs already. So we've already recycled a lot of our capital. And I don't know if our peers can say that they're, they're only been in the market one or two years, and they're generally doing much longer term loans. So I don't know if they've seen that recycling. And I think that that's an important data point to see that capital, come back and see that your your programs are working. Yeah, there's

Scott Berman  13:31  
very few people that you know, are doing what you're doing. But how you differentiated, you know, what are the main reasons that you're different than some of the other players that are in the dead space? Yeah. So

Rob Sechrist  13:41  
in the, in the, in the lending specialties, lending space that we're in, there's really only two other lenders that can do the size and scale of transactions that we can do. And both of those are publicly traded, but they are vastly different from us in their approach on how they lend. And I think it's a great option for borrowers, if they if borrowers want that. And typically, the difference is, is that they are more a higher proceeds based lender, they utilize the real estate value like we do, they also include the the licensed value, accounts receivable and enterprise value the company that's their lending basis, which could be 150 to 180%, higher lending basis than us. And so we just believe that that BDC, or corporate debt lending model is more for a fully mature industry that's not special to us. How are you valuing companies that aren't even profitable yet in states that the legislation really hasn't worked at, its it out, gotten worked out and things like that. So we just want to we believe that look at borrowers are looking for Max proceeds and they want to have a lot of covenants and tying them up. That's the direction to go. If they're looking for a long term relationship, the most efficient capital that they can get this is sustainable over a long period of time. This is where they want to be,

Scott Berman  14:55  
and probably a longer a higher yield and long term.

Rob Sechrist  14:59  
Well, the are competitors are a, potentially a higher yield, it just depends on how you look at it a note rate, I should say is for the borrower. But we're not that far off on what pricing that we're getting than where they are maybe maybe 200 basis points. But is that 200 basis points worth being 150% 180%, higher out out on the blending basis, you know, to be determined, but we would rather we've been through multiple market cycles, we believe that everybody will have some impact of the cycle that we're coming through. But we believe that our conservative underwriting and principles will will do better getting through the cycle than other of our peers, and just this asset class in general is going to outperform traditional real estate because it's all starts with people buying cannabis at a dispensary, or delivery service for 25 and $75. That 25 27 billion that's revenue coming through the country each year is still going to occur, it's just a matter of where it's going to go these each year, as opposed to you know, other hospitality or other real estate lenders or multifamily that they may not have that that same staying power is our as the income is what drives this industry. And that's going to remain coming through for us.

Scott Berman  16:12  
That's, that's interesting, Rob. So what makes a good investment for you guys? So like when you're looking at an opera, you know, at a deal and in different states, is it you know, the operator that type of business or in like the cultivation or processing, like, what exactly is attractive for you guys,

Rob Sechrist  16:28  
it really comes down to we can only unfortunately, work with experienced operators, we're trying to de risk every every aspect of this transaction. And the learning curve is just too great. If you can't prove to us that the tenant has already been a successful operator, that's we can't, we can't do anything there. And we also need an extremely strong sponsor with a personal corporate guarantee that has the liquidity net worth and cash flows to support that loan and the sizing of that loan. And when there are publicly traded MSOs, that the corporation has that corporate guarantee that can support that. And we look at obviously, at the property. And so those are the three elements that need to be in place before we can even begin to look at something.

Scott Berman  17:10  
And what size investment is your sweet spot?

Rob Sechrist  17:12  
Yeah, so our sweet spot is 10 to 30 million, we've issued as high as 77 point 7 million, we can go into the 100 millions on transactions, we might issue something later this quarter that might be up there. So there's we've got the capacity to do that. And I think that we have a competitive advantage during this market volatility that many of our peers, the publicly traded, are not able to issue any additional equity right now. They're trading at or below their book value. And that would be a doubt considered a down round. So we're trying to do our best to just do what we say we're going to do, and keep performing and keep gaining market share while our peers are trying to figure out how they're going to get through this this next 1218 months of market volatility.

Scott Berman  17:57  
Yeah, it certainly hasn't been easy lately. And I want to talk about like, equity versus debt and how things have shifted in the last few years.

Rob Sechrist  18:07  
Sure. So, you know, the equity generally all flows to the cannabis operators in I'm not sure if you're talking about public equities or private, but you know, right now, any equity out there is very difficult to raise. And so all of the borrowers are now really trying to making make sure that they are getting in front of that with with the best Debt Solutions, they can, there'll be a long term solution, I think today selling your property to a sales lease back. And cashing out today, when there's only going to be more and more market efficiencies and, and less friction in the capital markets, which which will bring the note rates in over time and to have a a sales lease back with an escalating lease for the next 1520 years, when the pricing and everything is coming in. That might not work out so well, in the next, you know, administration as as legislation changes, you're locked into an escalating situation. So I really think again, that model is a great, great model for a fully mature market with data points and not emerging markets with with legislation, you know, risk out there.

Scott Berman  19:17  
Yeah, I've definitely wanted to get into legislation and how that changes things. So first of all, what is what is your personal political outlook on where things are now and where they're headed in the next few years?

Rob Sechrist  19:29  
So prior to the Biden administration, making their recent announcement, I have been saying that I just don't see any significant legislation passing until probably the next administration and the reason I was saying that is that people talk about legalization of cannabis brought in reality. You're not legalizing it, you're ending prohibition. So if you end the prohibition it still falls back to states rights if they want to have cannabis in their state or not. It's just not federally illegal anymore. So there's a lot Long Haul here, but more importantly, there's two aspects to, to to cannabis legalization. There's the decriminalization part part of it. And then there's the regulatory part of it. So the decriminalization is more individual based, making it so people aren't going to jail for it. And also what what social equity justice reforms, they might want to have letting criminals out or expunging the records. The Democrats are hyper focused on the decriminalization, the social justice part of it, and the Republicans are only willing to go so far with everything they're trying to do. And so that that disparity between those two parties, is where the conflict really is both parties are willing to pass. And so the problem is, is that what would easily pass today, the Democrats aren't going to let it go through without having enough social justice flyers attached to it. What Biden did is that he basically leaned in and signaled to all the bureaucracies that now he's pro cannabis. And so what that does is it reduces the pressure on the Democrats to have to get something done. And so now I'm modifying my position. If we were ever going to get some incremental reform, I think it could be in this lame duck period. But I don't think it's going to be anything significant to change anything in the markets. It's just a baby step forward. And so that is just to continue momentum. But what's more important, I don't think anybody talks about it, is that the administration signaling this to the rest of the Bureau's is a is a signal to don't prosecute a lean in this way to the FDA to to all the different agencies that are there. Okay, we're headed this, that's that was the more important takeaway from that, that I think that people should be looking at.

Scott Berman  21:42  
Yeah, I agree. And I agree with you about baby steps. I mean, sometimes, these guys just try and solve all the problems like Schumer's bill over the summer, it was like, you know, dial it back a little, let's get safe banking through, let's just do one thing at a time, and then the industry will thrive. And I actually want to focus on safe banking for a second, there is a lot of rumors that it might go through in the lame duck, how will that change, you know, your approach to lending? Will there be a lot more lenders coming in? And how will that affect what you guys are up to?

Rob Sechrist  22:12  
So I try to stay away from commenting on a bill that's yet to be even ratified between the two houses. And and I think it's important for people to know when they write a bill, it is enormously broad of what the generalizations of what it's going to accomplish, then it goes into a comment period and that comment period, because last one, two years of trying to actually define what those broad statements or goals were going to be of that bill. So that would be years before that actually got implemented into the system, I think it would be a great an immediate signal to the industry. And that would be great. But I think it's more important, this industry is way more nuanced than anybody really talks about. And I think that people broadly compared to other industries, but it's a specialty industry in an emerging industry. So so for us in the real estate side, and where we think about things, this is special to use lending. And all these properties need to be built to reposition to be cannabis use. And so that's a very specific type of lender, banks traditionally don't do very well in the construction lending type transactions. And then when you start going to take that a step further, and you go to specialty use lending, banks really don't have the expertise and being in that so. So for us as a lender that can do transactions into the hundreds of millions of dollars. Banks are never going to be doing those types of transactions. So the banks that are in it today, there's 704, banks listed on FinCEN. Its website that are doing depositor relationships of those, we're tracking at least four dozen that are both federally chartered, state chartered and credit unions that are lending today. And so they're making loans, but they're not competitive to us, they're there are going to give significantly less proceeds and the delta and the rate, we may be, you know, twice that rate, maybe more than twice that rate. But the way that we look at and how we issue that that transaction off of a cost basis or replacement costs, as opposed to what banks look at, because it's federally illegal alternative use, which there's no other asset class in the entire country that you would base it off of, they would force you to value it off of what it is and what it isn't going to be. So it just doesn't make sense. So that's not a direct competitor. We're tracking about 100 private lenders in the sector already. And they're all a different sizing and capabilities. But really, there's nobody as big as us that can do these transactions and has the data points that we have. We have a very robust data project. We've scraped every single license in the whole country. We know who owns it, what type of licenses they have. We know where it's located. We're tracking who owns that property. We're tracking any secondary trades. We're even tracking the power to look at how these different jurisdictions and how much that really affects what the cost per pound is for that area. So nobody was tracking this industry from the real estate side. They're tracking it from the brands and the track and the brands and the taxes. sides. So they're looking at the cannabis sales. But nobody was looking at it special to us property asset class, which we were the first to do that.

Scott Berman  25:07  
Yeah. And I think what's going to happen to once these bills goes through and things happen with legislation, like people are going to look more towards you guys, because you have all that data and expertise. And you've done a lot of transaction. So there'll be more comfortable, there'll be more opportunity for the businesses in the States. But I think people from especially institutional investors would rather deal with guys like you that have done it before. And I've done large transactions. Yeah, I tried to just

Rob Sechrist  25:32  
tell people, this is such a difficult sector to understand in, unless you're an expert in it. And you're if you're making if you're buying stocks, and you know, every single thing about that more than just the profit and loss of the company and the sales and the, you know, the EBIT, da, and the ball shares volume. That's not enough to to make strategic decisions in the sector. And so I would really say, Look, if you want to participate in this industry, go with an expert, go with a fund manager go with somebody that's doing doing this every single day. With us, we're secured by the real estate. But we also have in the 32 transactions we have in our fund today, about four of them have equity kickers in them today. So we do get equity upside in some of these transactions. And right now, the trend is is that most of the transactions that we're looking at, we've got some component of equity in those transactions. So why would you go out there and pay par or pay it pay the retail price when you could get it at par from us or a discounted rate from us? Because we're negotiating that deal. And we've underwritten everything about that and can make comparative analysis to other people?

Scott Berman  26:37  
Yeah, and by the way, I can vouch for that, Rob, you I've learned a ton from you in our conversations. And when I when we first met afterwards, I was looking up a bunch of things later on, like, you know, you opened my eyes to a lot of things. And I really appreciate it, you know?

Rob Sechrist  26:52  
Yeah, well, I think that's our goal, whether you invest with us or you invest somewhere else. In reality, we need everybody to be educated, I want people to get to have the opportunity to make the best decision, so that they have the least chance of getting a not not being informed, maximize their profits, or minimize their losses and where they might be. And so that's important for even our peer, even our lending peers, our competitors, we never want to see anybody fail. So we're trying to educate everybody. If you end up work, messing with us, great are borrowing from us great, but we want the whole sector to succeed.

Scott Berman  27:28  
Yeah, I love that. I think there's a lot of that in cannabis. It's one of the least competitive industries that I've been in where people want everyone to succeed, and a rising tide lifts all ships, you know, once the industry starts to grow, we'll all be helped in all the different sectors that were in. So I want to go back one sec to the politics and the midterms that are coming up. And we have five states that are voting on adult use, How do things change your outlook, when a state flips from medical to adult use, do you look at it more closely are the more opportunities there.

Rob Sechrist  28:01  
So this is the big joke to me, every state goes medical first. It's not for medical research, it's for medical patient use. And it's just it's a lower bar to get the state to pass it. It's easy. It's the it's the entry point to that state starting starting the process to become recreational. So either they go recreational for medical first and then recreational later, or they go concurrently at the same time. So I we are happy to be providing a medical solution. Our Our hope is that out of the 350 million people in this country, that if just 1% of the people that are utilizing our 4 million square feet of trade have properties that we built across the country which supplies 15 to 20% of the entire production of the whole country. If we are just 1% of the population is not using opiates and using cannabis instead that's a win for us. But this this sector, should I lost? What were the I went on a side bar there. And I wanted to bring back the point what was the beginning? The

Scott Berman  29:05  
question, I'm just about like the change in the midterm midterm is the states that have it on the ballot of

Rob Sechrist  29:10  
magic flip. Thank you. So we're always trying to tie that together is is that in reality, the there's a DEA federal research license as well. And most retail investors are unaware that the feds are issuing these. We finance the first DEA facility out in Southern California. And this is the sector that has a closed loop system. In this system, you are selling to each other for research facilities and cultivation facilities. They all have to be DEA licensed and approved. And they sell all the product the year before and then they grow it and so they have a perfectly, you know, a perfect sales channel. There's typically selling from five to $7,000 a pound. That research is what's going to ultimately lead to cannabis being rescheduled, that you have to have that research to support that there's a viable reason to do it. And so To me, that's medical. That's that's the side. That's where they're going to utilize the the pharmacy grade products eventually. So you medicinal from the state side is for patients and just it's just to get the state started, in my opinion. I'm totally for medicinal. I don't that's not my point. I just think that people miss that that's medical. It's not like it's the DEA federal licenses that are going to take us where we need to go.

Scott Berman  30:24  
Yeah, I agree. And what I see happening too, though, is when the adult use comes in, a lot more licenses are given out, you know, there's a lot more growers, many more retailers, and a lot more capital being raised. So the amount of people looking for capital now is going way up because of all these new states coming on board.

Rob Sechrist  30:42  
That's that's a great tailwind that we have that other real estate sectors are not going to have. And so we've got it that it's a sin business that generally these businesses do better in a real estate or economic economic downturn. And we've got a tailwind going through what other industries might be more struggling with.

Scott Berman  31:00  
And tell me about, you know, your California based, like, what have you seen, I know California has had its ups and downs. But what have you learned? It's what six or seven years later for California? What good and bad? Have you seen it's gone down there.

Rob Sechrist  31:14  
So I think that number one people conflate the California market oversupply. And they don't realize that there's multiple channels at the California market. First, we have outdoor, which is wholesale. And that's typically what they're talking about oversupply. We're just coming into the harvest for this year. There's there's oversupply that it all everything gets dumped on the market at once. It's the lowest grade quality. The next grade quality up is indoor greenhouse type, trans greenhouse facilities. greenhouses are not as able to be as controlled as a full indoor facility. We specialize in funding indoor and and high very sophisticated greenhouse type transactions. And so that outdoor wholesale market is not a market that we're in. And so that what's happening in California, per se, is that when you're making massive investments in your brands in California, eventually you can't afford to have the price volatility and equality volatility coming from a wholesaler. And so eventually you start leaning in and having you're making relationships, buying into a facility building a partnership, or building your own facility, and decoupling from that, that that that price disparity and quality disparity from the wholesalers. And I just don't think that those guys realize that the brands were now producing more and more for themselves, and California kept producing more and more. And there's nobody buying that. But it's not that the brands are doing bad per se. So there's always going to be people that win and lose people that are doing well in this industry. And there's many, including the California market are doing well. They're not going to raise their hand and say, Hey, I'm doing awesome. Sorry about that. You so you only hear from the from the distressed people. Our book is performing well. We have many borrowers in in California, some of them I was just there yesterday doing a portfolio tour, some some facilities, because might be as high as $7,500 a pound. But when they blend it with their own brand and selling joints at $9 Each and the high premium eights, they're getting an average of $2,200 a pound. And so they're still able to with their brand, make a profit and maintain market share. So you got to just really gets more nuanced when you talk about the California market in any of the cannabis market across the country.

Scott Berman  33:23  
Yeah, it's a great point. I mean, people are still doing well, even though the headlines aren't great, but how do you feel about like any international business, you know, and how that might affect things are going to happen in the US?

Rob Sechrist  33:34  
Well, so the DEA licenses, ironically, can cross state lines and import and export. So that's an interesting aspect. But But I think your question is more for the the the the recreational and medicinal so I just don't see the United States opening up import or export, they would open up export before they would do import. But I think that would happen contemporaneously. I just don't see that happening when you have a new emerging industry, you're they're already keeping the state siloed to keep the tax base within those states, as opposed to voting on legislation that would make it so anybody could ship across state lines. Those states that were the early adopters are probably not gonna want to let lower capex and optics states with lower tax rates to be able to produce products and ship it into their state and blow up their tax revenue. So we'll see how that that plays out. But I don't see that in the near term for the United States. We do look at transactions across the world. We've been in Europe, and we've looked at transactions in South America and in South Africa as well. And I think that, you know, with us having the largest database and skill set in the country, and probably the world for doing these transactions, we may do a standalone transaction internationally, it would not be done with our fund. But we went there earlier this year to see if what the opportunity how large that was. And it's a long ways from us ever launching a fund over there or developing a product there. But we do have the bandwidth and the skill set to to do one off transactions there.

Scott Berman  35:02  
Yeah. And I think that it's I'm interested in the future. So my next question is like a longer term outlook, like, in five years from now, or 10 years now? Are we going to have interstate commerce? Or are we going to have Import Export? Like, what do you how do you see the industry playing out?

Rob Sechrist  35:18  
So I think that you, you must plan for interstate commerce, at least by compact state compacts. And so those will probably come within the next two to three years for interstate commerce, maybe five to 10 years. But I think you as a investor, you have to plan for a contingency event, but don't ever make an investment that's dependent on that. So that's, that's the difference there. You know, it's we'll have to, we'll have to see how the rest of it plays out.

Scott Berman  35:45  
Right? And so speaking of like investors and education, like what is your best advice for someone that is interested in the space, they might be a high net worth individual, they might be an institution, but they've been sitting on the sidelines watching this play out, like what is your advice for now and into the near future.

Rob Sechrist  36:04  
So if you really, if you're going to make an allocation to the space, and if it's a decent sizable allocation? Well, first of all, go with a fund manager, go with an expert in the sector. If it's a sizable allocation, then then go and start attending the conferences, get to know the people I know, go to go and hear the information, get it, get it from the horse's mouth, get it before it becomes you know, in a quarterly report, earnings report, you know, 90 days after it was already issued, or whatever it is. So, the I have, we have an investor that I see him at every single one of the conferences I'm at, and he's even telling you different ones that go to you that may or may not be cannabis related, but they were really important, the salt conference for one, but if you're really interested in it, then make an investment of your time before you make an investment of your dollars. If you can't do that, then attend and watch the Benzinga. Webinars, can their global, you know, you've got should partners, you've got all these resources that they've put up videos. And it just, it's changing so quickly, that you've got to be watching and tracking that stuff, become your own expert in it, you can just draft off of guys like me, and you've picked up a lot of probably information just in this short 30 minutes listening to me, you can get your own, you know, I've got it more from the real estate side and the way that we look at it. But depending on where you want to be, if you want to be an equity in the cannabis operators, you want to probably be attending these conferences and making direct relationships with those people yourself.

Scott Berman  37:30  
Yeah, and your earlier point about when you invest in, you're looking for operators who have done something and who have experienced and I think the same goes true for investors, when you call a guy like Rob, who's done a lot and knows what he's doing. It gives you a lot more a lot a huge head start on getting into the space. So I think that's great advice. What What else, you know, do you want to add about like, the political outlook in the future? And you know, where what's your optimistic look on things of where we're headed in like the, let's say, the next six to 12 months?

Rob Sechrist  38:00  
So I think, I don't know if we're gonna see any legislation that that allows up listing on the NASDAQ or any of that stuff. So and I don't think that we're going to see any significant. I don't know if if safe tanking is going to achieve what everybody thinks it's going to achieve. So even if that pass, hold off on jumping to do something, don't don't buy the stock that day, because you think you beat everybody else who's gonna buy it that day? You're gonna need to wait and see what that what that plays out to be. What does it really mean? What's actually going to what does that wall gonna look like? But there was one point I wanted to add, I think, in the next five to 10 years, 20 years, I think that the form factors of how cannabis is going to be used is going to change so massively and primarily shift from being a soda on the ounce level into the micro dose level, and microgram. And so what I mean by that is, is edibles and beverages I think beverages is going to be the ultimate one because the onset and offset is so similar to a beer these days, they can get it down to that five minutes onset, 45 minutes offset and equal to what an hour with a beer would be. I think that you know, 10 years 20 years, my son is gonna be like, What were you guys doing drinking alcohol like that's that's that's bad for you. And what were you doing smoking? I think flower always be part of the business. But I think that in a generation 20 years out, they'll be like, What were you guys doing? You know, it kind of how we look at cigarette smoking today. You know, from from 30 years ago that was that was cool and hip. Now most people are like, yeah, probably I'm gonna try not and start and if I'm smoking, I'm probably trying to wind down as best I can.

Scott Berman  39:47  
I also think about like prohibition of it when I learned about alcohol prohibition when I was in grade school. It seemed really, you know, like a dumb thing. You know, everybody was drinking whatever. And I think in the future, we're going to look back on The fact that we actually put people in jail for cannabis, and wasn't allowed is a really dumb rule. So I'm excited about all of that opening up for all sorts of people. I agree with you that the form factors are changing everything. And people just haven't using the plant for different reasons. You know, we were here talking about business and investing. But really, we have a plant that's helping people. And it's medicine for a lot of people. And that's a really good thing as well,

Rob Sechrist  40:25  
in just D stigmatizing it. Yeah, we're all even myself. And even to this day, I smell pot, and my initial reaction is like, somebody's doing something bad. In you know, and it's legal, but it's just, it's so baked in. But in the future, if people are drinking, you know, THC infused beverages, there is no smell, and they're just having a good time. And it's they're not, they're not poisoning their, their body with with alcohol.

Scott Berman  40:52  
Yeah. And I also think, you know, from an investing standpoint, like if you could have gotten into the, the alcohol business, you know, in the 40s, and 50s, you know, and invested in, you know, the brands back then, and, you know, that's where we're at now, like we're at the forefront. I mean, that's what's exciting about it for me every day is we're really creating an industry, you know, and it's growing and growing. And like, look at the money that you guys are putting out there. And it's, it's really exciting to be part of this change. I can

Rob Sechrist  41:18  
tell you that alcohol, big alcohol, big tobacco, are tracking many of our facilities that we are that we are actively lending on, or about or considered lending on or about to lend on. They are they they are losing market share big time. And they know that needed to do something to pivot to to make sure that they're around and another decade or two.

Scott Berman  41:43  
Yeah, and we have for a lot of our investments through the Panther fund, we see exits coming from some of those big players. As soon as things change a little bit on the ground politically, I think they're going to come in and buy up a lot of these things. So we see a lot of m&a activity coming in the next couple years. Yeah, it'll,

Rob Sechrist  41:59  
it'll be interesting times. But again, I think that you got to remember, this is not a fully mature market. And these are specialty use properties. And there's don't conflate the general outies of other sectors to this sector, the m&a acquisitions there's, there's constraints on those licenses and how many you can own and who can own them. And so just there's, it's not going to be as streamlined as is everybody thinks,

Scott Berman  42:26  
yeah, awesome. Well, Rob, I know, we could probably go on all day, but I'm sure you're super busy. I really do enjoy learning from you, you really have a wealth of knowledge. And the way you look at the space from a higher level is really amazing to me. So thank you very much for your time today. Tell it tell everyone how they can reach you and what kind of investments you guys have now and how to get in touch.

Rob Sechrist  42:47  
Yeah, so we just have one fund that you can invest with us. And you can contact us by emailing i are for Investor Relations at pores equity group and pores is P E L O R U S, and then the word equity group.com. That'll get some medicine, that you're interested in something that if you can let us know where you came from. We really appreciate that. It's always interesting to know how people are hearing about us and we're happy to provide you information on our funds, our historical returns and all that good stuff.

Scott Berman  43:18  
Fantastic. Rob. Thanks. Thanks very much. Hopefully, I'll see you in Vegas or one of the trade shows soon. Yeah. Thanks, buddy. Have a good day. Bye. Thanks.

Michaela Petrone  43:28  
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