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Josh Rosen and Jerry Derevyanny discuss the current state of cannabis investing, focusing on federal regulations, investment strategies, and the challenges of valuation in the cannabis sector. We explore the expected consolidation in the industry and offer insights for retail investors navigating this complex landscape.
- 01:01 Backgrounds and Roles in Cannabis Investing
- 07:11 Federal Landscape and Regulatory Changes
- 19:10 Investment Strategies and Market Dynamics
- 26:24 First Mover Advantage in Cannabis Industry
- 29:56 Understanding 280E and Its Impact on Cannabis Quality
- 32:25 Insights on Glass House (GLASF)
- 38:29 Valuation Challenges in the Cannabis Industry
- 45:03 Retail Investor Insights: Navigating the Market
- 50:20 Public vs. Private: The Future of Cannabis Investments
Transcript
Rena Sherbill: Here we are December 18th, 2025, Jerry Derevyanny back on the show, Josh Rosen for the first time much talked about never appeared directly on the cannabis investing podcast. Welcome both of you to the show. Thanks for coming on.
Jerry Derevyanny: Thanks for having me again.
Josh Rosen: Great to be here.
Rena Sherbill: It’s great to have you guys. Talk to us. What are you thinking about? Twitter’s a buzz and a lot of interest given Trump’s executive order that we have yet to read, I guess, but we’ve seen it being signed. Not much excitement, I think, from this crew on that news, but certainly more interest will be coming to the sector.
Rena Sherbill: Let’s start at the very beginning in terms of bringing you both on the show. Josh, I’ll start with you, because you haven’t been on before. If you want to introduce yourself and say your roles and where you’ve come from and where you are now and how you and Jerry fit together, that’d be awesome.
Josh Rosen: Yeah, certainly. So I go current to backward. Right now I like Jerry, managing partner at Bengal Capital. Unlike Jerry, I also have an operating role with one of our portfolio companies, is Grown Rogue, where I’m chief strategy officer.
Spent my time going back on the investing side, actually my formative years, where I was an equity analyst primarily at the investment bank Credit Suisse, covered the business services sector there, kind of mid 90s through the mid 2000s, transitioned into the money management world, had a small alternative asset manager, and then ultimately came to work for a family office, moved from Chicago in 2009 to Scottsdale, Arizona, where I reside now worked for the family office of John Sperling, who was the founder of the University of Phoenix.
And that was really the catalyst for me to enter the cannabis scene as he was also one of the principal drug reform philanthropists. He was an instrumental funder of the 1996 medical marijuana shoot in California, for instance, so going way back.
So it was a topic that I knew he cared about. That was my introduction was medical marijuana was on the ballot in Arizona in 2010, began to take a look at the business side of things then with Chris Crane, formed Forefront Advisors in early 2011, ultimately transitioned from being a passive capital allocator investor in the space to active when we acquired Forefront from the family office in late 2013 into 2014. And that’s gonna dovetail into when I met Mr. Jerry Dereviani.
While at 4Front (FFNTF), we ended up pivoting what was an advisory business model over to being, I guess, the precursor to what became the MSOs. In 2018, I believe it was when I first met Jerry, we were looking at partnering with strong production cultivator operators and was introduced to Northwest Cannabis Solutions and the PubCo version of that being Cannex. And Jerry was…Jerry, what was your formal title at that point?
Jerry Derevyanny: Corporate development.
Josh Rosen: Because I know as much as you are an attorney, you always want to make sure you shy away from being a general counsel. And so I met Jerry in 2018. We merged Forefront and CanX in 2019. And I stepped back from that. was CEO. I stepped back from that in March of 2020, just as COVID was beginning to ramp up.
Joined the Bengal Capital formally in 2021. And we started, we looked at a handful of deals with Bengal Capital prior to joining. Started a very friends and family based equity fund in mid 2021. I think June was our formation of the fund, Jerry, if I’m remembering correctly. Great time to become a public equity cannabis investor in June of 2021.
I don’t think we quite called the peak. I think it peaked a little bit before we started, but not much. And I think we can get into the specifics, but through that I’ve also, the other role that I’ve played real actively in the industry more recently, I was on the board at Vireo (VREOF), or what was Goodness Growth when I joined the board and subsequently was part of the process of originally selling to Verano (VRNO).
That transaction didn’t happen and then was asked to step in as interim president, interim CEO at Vireo, which I did for better part of two years, before coming back to Bengal. So covered a lot of ground there, but still, I mean, think the overarching theme for me is I’ve always been a bottoms up fundamental equity analyst at core. Like I still suffer that affliction. That has kind of been a blessing and a curse throughout the history of cannabis investing.
Rena Sherbill: A lot of ground, but pertinent ground to cover, I think, very relevant to your journey and where we’re at right now. Jerry, have I been mispronouncing it the whole time? Is it Yanni? Is it Derevyani? I feel like I’ve always been saying Derevyani.
Jerry Derevyanny: I mean, you’re pretty close. That’s pretty close. That’s probably a little bit more accurate to the Russian pronunciation, so, yeah.
Josh Rosen: At Bengal, we just go casual and try to take him back to his roots in Kalanyaro.
Jerry Derevyanny: That’s my Russian given name. Yaroslav.
Rena Sherbill: Oh, I love that. Every conversation is something new. I love that. Edifying. Long-term partnership. Jerry, talk to us. You’ve been on before. I think our audience knows you. But briefly update us on what you’re doing and what you do.
Jerry Derevyanny: Sure. Yeah, so partners with Josh at Bengal Capital and we’re, you we manage the fund. We, I’m not in an operational role, but you sometimes I definitely try to, try to help out where I can in terms of just little things with the companies that we, that we invest in. I think we’re in the MSO skeptic camp generally. And I think that’s been kind of the through line with us for years.
And so that’s why we kind of focus on the smaller, the more undiscovered of the undiscovered. And right now lot of that has been focusing on grown rogue and focusing on how we can help grown rogue, opportunities for grown rogue and stuff like that. But we’re always kind of keeping an eye out on the market and trying to figure out what is going on in this wild and crazy world of cannabis.
Rena Sherbill: would you say for those wanting your takes on the federal picture and what it does and what it doesn’t do, the rescheduling and what it may or may not portend and on a scale of one to 10, how much you care on a scale of one to 10, how much the average retail investor should care? Would love to hear your thoughts.
Josh Rosen: The 10,000 foot view, I’ll offer the 10,000 foot view first, which is from the early days of actually being educated on the advocacy side by both the family office I worked for, but really Chris Crane when we formed Forefront back in 2011, Chris had been the executive director for student for sensible drug policy.
And I remember early on him articulating and he actually did a very good job of articulating which states were going to come, how they were, you know, how they were going to pass their initiatives, which states might actually happen legislatively.
And right from the get-go, he was incredibly skeptical of anything happening on the federal level and what that time, timeline looked like. And I actually think he, like many in our camp, gained probably some false sense of optimism as time went on that the federal side would start to move more quickly as he became more in tune with the business side of the industry. And I think we all wanted that to happen more quickly than it’s happened. And I think that creates a little bit of self-fulfilling optimism.
But at its core, the federal side is just really hard to move. And I’ve always anchored on that probably more than others, that things just take a long time on the federal side. And so when we think about, I’ll call it the advocacy hat versus the investing hat, the advocacy hat is anything that’s migrating us from this march toward better decriminalization, toward a better environment for cannabis legalization, I’m a big fan of.
On the investing side, just have always focused on not treating regulatory as a catalyst outside of some of the state-specific catalysts you can get your arms around and feel better about predicting the outcomes of. And so that’s kind of the 10,000-foot view is with the business lens we tend to focus on is, yeah, there might be a nice catalyst that’s supportive on the federal side and is conducive. And we obviously have to be cognizant.
For instance, people will speculate about interstate commerce with various forms of legalization. We’re pretty cognizant of what business risks are being contemplated, but really focus on building business with respect to the regulatory environment that we’re in. And that’s kind of the way we operate on the investing side, at least the way I’ve always operated on the investing side.
Jerry Derevyanny: Yeah, think so. So I think one of the questions is right is, is what should retail, how should retail look at federal and especially what happened today. And for those that are listening to this podcast, like what happened today is that president Trump signed an executive order, which was rumored, where rumors were swirling for the past, at least the last week. more than that, the, and what that executive order does is effectively two things. And the text of it actually was released. and I took it.
I took a look at it. Number one, it tells the attorney general, Bondi, with all speed, all deliberate speed, expeditiously as possible, to proceed with rescheduling and to issue a final rule, et cetera. So some of the rumors that I saw were that Trump was going to reschedule by executive order. Now, President Trump has certainly made other executive orders that have then been overturned as going too far in court, but
The law from experts like Shane Pennington and stuff, the law seemed pretty clear that you cannot reschedule something by executive order. the process is ongoing. So the realistic expectation there should have been that it was going to be some kind of pushing the process along.
The other thing that it does is that it directs the, you know, certain members of the executive to work with Congress to draft a proposed statutory definition of Hemp that would allow CBD products and there are some specifics around that that I don’t know if they’re terribly relevant to this part of the conversation. But the point is that, okay, well, as Josh was saying, the lens that we take is, okay, well, what difference does it make in the business? Right? Well, let’s look at the big companies. Almost every single big company out there right now already acts as if 280E doesn’t apply. Right? They’re already taking these positions that they’re not paying these taxes. Right? So does it actually increase cash flows?
No, not really. Normally, like in the old days, if 280 went away, EBITDA would stay the same, but cash flows would increase. But in this case, EBITDA stays the same and cash flows stay the same too, for all except GTI (GTBIF).
And so, you know, many people kind of accuse specifically me of being a little bit of a Debbie Downer, but I think a lot of what I’m seeing in retail, if Twitter’s any indication, is people drawing these conclusions and thinking that a lot changes and then being really surprised when other people disagree with them, when not a lot is actually changing in the business, right?
So 280E is not going away, not yet. Like, yes, clearly they’re on some path to schedule three. We learned something very useful today, which is that Trump is not interested in schedule two, which was a rumor that was out there. And apparently, Dr. Oz, who’s in the administration was arguing for schedule two. That’s positive. But, you know, people are acting as if they’re pulling forward what’s going to happen in the future with like certainty. And that’s just not the case. And I think especially retail investors need to be really, really careful doing that, because or else, you know, they’re going to think that it’s so obvious as it seemed like a lot of people on Twitter seem to think that, my goodness.
And then when they see the price action today, which is to drop the price below the price that the (MSOS) was at when the initial rumor that Trump was just going to potentially sign an order on Monday was, right? They’re kind of surprised. And so I think that’s kind of the danger of the sector. You really can get burned playing the trade that kind of everybody agrees is the good trade. You really can get burned playing that.
Josh Rosen: Can I jump in real quick, Rena? Just one little context here I think is interesting is investing versus trading. Because I think there’s a dynamic here that is in play, which we, and I referenced kind of the affliction of being a fundamental equity analyst at core. We’re focused on business building value creation.
I do think there’s a large part of this that is the speculative positive regulatory, positive stock, positive environment. And that trade dynamic is one that I think the retail investors often can get caught up on the wrong side of with respect to, you we’re focused on the fundamentals. Jerry very rightfully is skeptical about the impact on the fundamentals of the business. It doesn’t mean that these trades don’t work at times and or people aren’t going to make or lose money because of how the speculation side of this industry works.
And what is the lack of liquidity in a lot of the smaller, maybe fundamentally better companies in the space. And so, from our vantage point, to tell is always if news happens and it’s good for the fundamentals, you might not see it the day that it happens.
If news happens and Tilray (TLRY) is the stock that moves the most, or Canopy Growth (CGC) is the stock that moves the most and it’s US regulatory oriented, you can get a pretty good feel that what you’re seeing is some type of whether institutional retail, whatever it is, it’s very trading dynamic oriented. It’s not truly investing oriented. And it’s folks either trying to get in front.
So when you see a sell off like today, it’s like, okay, well people ran out in front of us and they’re not, what was it that they were looking for? Because what came down, it was right down the middle of the plate as far as I could tell from an EO standpoint. mean, it could have been better. You could have had safe, like people were talking about safer or other elements coming kind of coming into this executive order, but I’m not convinced that even if that were in this that you’d have seen any less of a sell-off.
Jerry Derevyanny: I think I was actually surprised to learn, I went back and double checked that I didn’t follow this too closely because people think that by following it closely, actually, they know more, but they just don’t. They’re just getting yanked around by their nose every single day and then you can just ignore the news for a week and come back and be pretty much as well informed as anybody else.
It was interesting to see that CNBC reported that one source said that banking would likely be addressed in the EO. I’m very interested in the sourcing on this. I don’t want to be tinfoil hatty about it, but I have a theory that the cannabis industry in their push for the EO did make the push for safe, that there was some, you know, like, okay, yeah, we’ll consider it. And then there was considerate pushback from the SAMs of the world, Smart approaches to marijuana is kind of a neo-prohibitionist organization under Kevin Sabbath the and recall that there was pretty good sourcing on the fact that the speaker of the house was not a fan of rescheduling any the way the executive order would have been written is that he can’t direct congress to do something but he can’t you know he can’t officially but he can say hey congress i want the president wants this law I direct you to please pass this law.
Well, can you imagine if Mike Johnson is not a big fan of rescheduling, I imagine he would have said, let’s not try to put political pressure on me to pass safer. You don’t need it. Let’s yank it out of this one. It’s a bridge too far. And so that’s not to say it’s never going to happen, but I do suspect that people forget that there are puts and takes and I also think that people forget that what they were so certain of a month ago, that didn’t happen.
And now they are so certain that the next thing is gonna happen. they just, like people have, it’s like memento. They have like investment amnesia from what they thought just like two days ago.
Rena Sherbill: Well, yeah, I mean, and that’s how social media works. That’s how Twitter works. That’s how this game has been played since you guys got together, you know, at least 2019, probably before that. That’s what’s been going on these past few years, right? This is like the narrative and the reaction and the reaction to the reaction.
Jerry Derevyanny: There’s this really useful concept when investing and just generally called the Keynesian beauty contest, which is I think named after the famous economist, John Keynes, where it’s the kind of game where it’s not about trying to guess what the best is, you know, trying to figure out what the best is of something. It’s trying to figure out what everyone else thinks is the best.
So it’s like if it’s guessing what other people’s opinions are rather than what the actual truth of the matter is. And right now, I always think about this with respect to cannabis investing because it just seems like a lot of people are, I mean, they’ll tell you privately, you know, tiller is crap, what are you talking about?
But everyone else thinks it’s good. And so that’s what I’m gonna trade. And sure, the trade could work, but that is also, but that’s not really investing and that’s not really what we do. So, you know, we’ll miss the gravy train on that.
Rena Sherbill: So what are you guys doing? What are you focused on? What companies would you bring to the front of the line or what kinds of metrics are you looking at these days?
Josh Rosen: With the chief strategy officer role at Grown Rogue (GRUSF), I’m pretty outspoken on this, albeit with a really small platform. I view best in class cultivation as the engine of the industry throughout the supply chain. And it’s one of the reasons that we decided to lean in so much with Grown Rogue because we’re a very capable cultivation team. We’re referring to ourselves as flower forward. And I think that dynamic flows through.
And so what we’re spending a decent amount of time with, and I’m going to kind of bring it back to the investing side, because I think it dovetails into what’s going on, probably on the private side as much as the public side, are the companies that are customer centric.
This goes for retail as well. The customers that are truly customer centric, and while they’re focused on their bottom line, they’re not focused on this quarter’s bottom line. They’re focused on the next three to five years bottom line.
And I think the environment, you know, fortunately or unfortunately, and I don’t begrudge, I’ll call it the standard MSO that is kind of heavily benefiting from being vertically integrated in a market right now, from trying to continue to push product through their own distribution path because it’s the greatest source of profits and they are sitting with a pretty healthy debt load. They’re sitting with a potentially the tax liability as Jerry was referencing. You know, that.
That is a very fairly pervasive practice these days. And controlling more shelf space, you’re seeing a lot of folks kind of augment and try to expand their retail networks this way. And so what that causes us long term oriented investors to do is just look back and think, okay, long term in this space, customer centric, providing value and quality to customers wins. And where are those opportunities to invest with management teams, invest in operations that provide quality and value consistently?
And we tend to anchor, and I think this goes back to even the history of Forefront, the good and the bad. The good being we very quickly migrated. The reason that Jerry and I know each other was my preference to go and find operational best in class operators in battle tested arenas, the state of Washington being a battle tested arena at that point on particularly relative metric and applying those talents elsewhere.
And in many ways, I’m still stuck on that same blueprint with Grown Row, best in class operator and trying to take that in a very prudent fashion and scale it. And I think the public markets, know, fortunately or unfortunately, but for retail investors, unfortunately, don’t offer a lot of alternatives in cannabis right now that map to this.
There are some good operators that are out there. I think they’re a little bit beholden to their cap structures. And it’s what makes me so excited about what we can do at Grown Rogue over the next three to five years that there aren’t a lot of others like us that can stay prudent with balance sheet risk while just stamping out what I think will be some really compelling returns on capital over the coming years with flexibility.
I think the last thing I’ll say, and I think this ties into the hopes and dreams attached to regulatory reform is if we had enough regulatory reform where capital flows were materially back into the space, they do tend to flow to the big companies first. And if the big companies could de-lever their balance sheets with a meaningful amount of equity at some point in the next 18, 24 months or six to 12 months, more acutely for some of them.
It does start to change the landscape. do think that there is some competitive advantage to access to capital and to leaning into those balance sheets and the cash that they generate today. Albeit, we don’t see them as best in class operators in very many of the markets we operate in.
Rena Sherbill: What would you say to your point about forefront and still concentrating on essentially the same things, but obviously, you know, learning some lessons, what would you say have been the most lasting lessons and what you’re really taking with you?
Josh Rosen: Jerry, you left shortly after I did. You’re 2020 as well, right? Yeah. I mean, I think 4Front is similar in some ways to some of the other insolvent companies in the space at this point in that they over levered with sale, backs, and debt. I actually think they’re dissimilar from some of the companies in the space in that still kind of knowing the operate the operating side of the business.
They’ve continued to run relatively tight operations in Massachusetts and in Illinois from a profitability standpoint. I mean, almost everyone’s profitable in Illinois to a degree. So that’s not all that remarkable, but Massachusetts is a market that got particularly competitive. and 4Front operations held up reasonable, know, really well on relative basis in Massachusetts until, they lost their, their complete mojo from a balance sheet standpoint.
So I think that, that kind of the, one of the lessons was the operating integrity did matter when the markets got competitive, having better operating capabilities was instrumental and important, but you just, can’t make up for poor capital allocation and discipline and 4Front’s heavy foray into California and the delays they experienced in building out a really massive facility in Illinois on the balance sheet side just really doomed them.
I don’t think that capital allocation balance sheet side of the equation in an industry where equity capital has only been available in small windows to many of the companies is just a recipe for doom for a number.
And we’re seeing a lot of insolvencies the last 18, 24 months, our 4Front being but one of them. And then, yeah, there are personal lessons that are wrapped into these things all the time from a leadership governance standpoint. And so it was definitely a learning experience on the personal side in terms of stepping back, how aggressive to be, how passive to be at various times, window-lean into things. I took a lot of good lessons. We refer to it as scar tissue frequently. Kind of lean into that scar tissue. And it was really instrumental in, think, helping save and preserve value at Vireo. The experience I had at 4Front was in part the blueprint for bringing operational integrity into Vireo’s operations.
Rena Sherbill: Would you say, Jerry, I want to hear your thoughts, but would you say, Josh, that there is such thing as first mover advantage in the cannabis space or maybe at all, like in any industry?
Josh Rosen: I could take both sides of this argument. It’s a great question. mean, think the simple answer is from a market penetration and access to customer early on.
I do think there are some advantages to being early, particularly to building your footprint. You know, we recently wrote a, our last quarterly update covered our, we refer to as three buckets of profits and it kind of addresses this to a degree.
But I think it’s situational. One of the things that I would say with respect to cultivation facilities, a lot of them are overbuilt. A lot of them are unproductive. And I had someone reference the, and I have no personal experience with golf course investing or golf course ownership. But it was basically the concept that the second or third owner of the golf course is the one that actually makes money, not the first owner.
And I’m beginning to think that that might be true of a large number of cultivation facilities that, yeah, there’s not much of a first mover advantage outside of pricing’s really high when you start, but you get drunk on that pricing. And typically, when you don’t come with the of the battle tested approach of what it takes to be an efficient quality producer, you get eaten for lunch as the markets get competitive.
I think that first mover advantage to a degree in a lot of the markets, each of the Mississippi in particular, ultimately has been a big disadvantage to the players as opposed to an advantage, even though they got to attract capital because they were making a lot of money in the early days.
Jerry Derevyanny: I was talking to somebody a couple months ago and he was relaying that when he was looking at pro forma, know, kind of like projections of what operations were going to do a couple of years back that in, you know, in states, especially East coast, they just didn’t project out prices falling to below like $2,000 a pound at wholesale. She didn’t think it was going to happen. Even though they would always kind of like hand wave and say, well,
Washington’s different, it’s really competitive. Oregon’s different, it’s really competitive. California’s different, it’s really competitive. And, you know, yeah, of course, they’re less, more competitive, less competitive states. But I think there really was this underlying idea that it can’t happen here in any kind of meaningful timeframe. And the equity is going to work, so we’ll be able to refine it and all these things. And I think ultimately, you know, we try to think about what does not change.
Right? And for me, what’s been, I’m not a huge smoker, but what’s been interesting for me to learn is that it seems like cannabis shares certain characteristics with alcohol.
And one of those things is that there is a subset of people that, and there are a good number of them, that will pay for quality. That will pay, you know, they enjoy the quality enough and they like that, that they will pay a very decent price for it.
A price that allows a business to make a very nice return on capital by giving those customers a lot of value. Like, they could not grow themselves, right? And it’s high quality and everybody wins. And that’s kind of the thing that I go back to is that, you know, and retail too, obviously, like I personally know some retail operators that are incredibly customer focused and really good at what they do. And this is kind of a version of same story.
And so that’s what I think we try to focus on is just going back to just blocking, tackling basics of, okay, 280E, not 280E. 280E going away does not make bad weed, good weed. It does not make suddenly the customer go, 280E is going away, okay, I guess I’ll buy this shwag for some ridiculous price. Like it doesn’t do that, right?
So to me, that’s kind of where I think we part ways from a lot of these kind from a lot of the other people that look at the space.
Rena Sherbill: What do you guys each think of Glass House (GLASF)?
Josh Rosen: I mean, I’ve always had from very early on from some of the industry network diligence, a great deal of respect for Graham. And, you know, we like great operators and I had heard that he was a good team builder and that he had folks that were real loyal to how he executed and that side of the equation. So I’ve always been impressed.
On the face of it with what they were potentially capable of accomplishing. But I think from a just within the facilities they’re in, what they’ve accomplished from a cultivation standpoint is really remarkable. From an investing standpoint, and Jerry’s heard me preach this before, I’ve always struggled with both the concept of interstate commerce and when you make that bet, as well as what an individual operation is capable of from either a brand standpoint or kind of where growth gets capped.
So how do you actually take advantage of what I still think is a growth environment in the industry, the blue sky of the industry, which ultimately should manifest in brands and typical, more typical CPG and or even the commodities on the industry in leaning into your capabilities, but being able to grow around them.
And so I’ve always felt two things with GlassHouse that prevented us from, at least prevented me from wanting to be an investor. One was it felt like there was always this risk that they would get clipped not for what they got clipped for, but for interstate commerce access. And even if you’ve got a really, really tiny risk that’s existential, existential risks are pretty unusual for publicly traded companies. And it just kept me on the sidelines of, okay, I think that this probably works, but not a place that I’m comfortable from risk management standpoint.
And then the other side was just being kind of tapped within a single facility, large facility, but single facility and how much market they could penetrate, et cetera. And to their credit, they’ve done better than I would have ever expected with respect to that.
Given the appreciation we have for operating chops, it’s a pretty impressive story along those lines. But kind of where they go and how they get there, I’ve always, I’ve always struggled with what the ultimate upside is in that in that business, knowing that there are other great outdoor cultivators in California.
There are other solid greenhouse operators in California. They’re not alone. And that’s one of the kind of one of the underlying dynamics in play. There are great greenhouse operations in Canada, obviously not with the same climate, but there are some in Arizona that are in fantastic climates for greenhouses. And so where the competitive advantage really lives and how it gets exercised, I’ve always been kind of held us back, at least held me back from being an investor.
Jerry Derevyanny: Aaron Edelheit, who we are friends with and also an investor in Grown Rogue is a big fan of Glass House. So there are smart people, that are, that are invested in Glass House that take the other side from us. Should just be clear about that.
I kind of dovetail a lot with what Josh said, obviously, like it was a decision that we made not to invest in Glass House. A lot of it was valuation based because, know, the kind of broadly speaking, right, it’s a, it’s a very nice greenhouse and, the channel checks came back that Graham really knows what he’s doing, runs a good facility, but it’s still, you know, it’s, it’s, it’s greenhouse. It’s not indoor. It’s not quite the same quality. It’s not perfect. And, you know, Santa Barbara is a great climate to grow cannabis in, but it is not the only perfect place, the only great place to grow cannabis in the United States.
Like Josh said, there are places in Arizona that have a really nice climate and actually are not that hot. There are places in Texas that are relatively high altitude and get plenty of sunlight, but are, again, don’t get hot and potentially have better water access over the long term than California does in addition to lower power costs.
One of the underlying risks with Glass House is a lot of the upside of Glass House people talk about in interstate commerce scenario. Number one, we have no idea when that is coming. My personal guess is that the day you get federal legalization, it will be a minimum of two years before you see actual interstate commerce in any material amount as states figure out how they’re gonna interact.
and how shipments are gonna work, how they’re gonna harmonize regulations, stuff like that. A, B, people just assume that like this stuff sells itself. It does not. They need to get on the shelf. They need to get relationships on the shelf with retailers that are across the country. Like that is a process that takes much more time. We’ve learned this with Grown Rogue even great quality, it takes a while to sell it.
And it takes a while for people to understand it and for buyers to know it. There’s a process. So people just kind of assume that the day federal legalization hits, they’re like 80% EBITDA margins because they’re selling across the country. just not realistic.
The other thing that I think people are missing is I think it’s kind of an open secret and I don’t blame Glass House for this because it’s not their fault. They should not have to diligence all of their customers other than the fact that their customers are properly licensed and they can find them online or whatever database California maintains.
But I think it’s kind of an open secret. Even the CEO has found his own product properly labeled in New York in illicit shops in New York. So some portion of what they are putting out is already going out to interstate commerce. And so you’re already seeing the benefit of the, like the financial benefit of that interstate commerce at higher prices. You’re already seeing that to some extent in their financial results.
So people that are expecting this like huge boost, I don’t know if that’s realistic either. And then fundamentally, they have this great greenhouse and everything. How much would it cost? Like the technology is getting better. We’re understanding how to build these things better. It isn’t the only place in the world where you can put a cannabis greenhouse.
If they spent a billion dollars on that greenhouse and they have a decent size cost advantage, you’re telling me that to be the cost leader in a $50 billion industry, I can spend $1 billion. That’s not a huge, that’s not a huge moat, right? In the grand scheme of things in the future, it’s just not.
And then they didn’t even spend a billion dollars. And so it’s, and then you get to like relative value of, think I’ve used the example before of, of village farms where you go, okay, village farms, they maintain not as big a greenhouse as, as glass house, but they do pretty well out of their greenhouse in Canada. And they sell branded product mostly rather than B2B.
Right in the Canadian market and they’ve gotten some traction there. have international and when interstate commerce comes, could conceivably, you know, they have access to greenhouses in Texas and they could conceivably start to take their playbook from Canada and input it here.
I’m not saying that they’re going to win. I’m not saying this, but if you look at the difference in value and I haven’t checked recently, but we’re talking like glass houses is multiples worth multiples of what Village Farms (VFF) is worth.
And when you kind of put a two and two together, go, okay, well, I mean, Glass House, you can trade it on Robinhood, so there’s something that’s working out for you. But, those are my collection of broad reasons why we’re not, why the valuation is kind of the main stopping point for me.
Rena Sherbill: I appreciate that. I wanted to ask about valuation and then I wanted to spend like a few minutes asking you maybe like some quick hit topics if you guys would give like a minute on each.
But I think valuation is a worthy topic and maybe timelines and valuations and what you both are looking at when it comes to the valuation conversation and any other context you feel like is useful for investors.
Josh Rosen: I’ll start just so I would when I was at Credit Suisse and then when I transitioned away from Credit Suisse into the into the money management industry, would one of my mentors I worked for at a small little boutique money management shop called Crystal Rock in Metro Chicago. And Jay Friedman is said mentor and is just frankly one of the valuation gurus in the country in that world. And
So I’ve spent a lot of time on this kind of cashflow analysis and reverse engineering, kind of the embedded expectations within publicly traded companies in terms of what the growth expectations, the capital efficiency of the business is. And my holistic view on the industry, and I think this is one of the challenges and one of the places, we’ve got a number of places we struggle with the MSO business models from a pubco standpoint.
But one of the core ones is just trying to figure out what the long-term growth rate of any of these businesses is, what a real growth trajectory that looks out three, four, five, six years actually looks like.
And it’s particularly challenging because these companies have like a map with eight or 10 states and each state is operating at a different wavelength with respect to its growth curve and or its negative growth curve, how profitable it is, what its profit margins are.
And then there’s some exciting growth markets that people think will great that now I’ve got growth because Virginia, Minnesota, and these states are coming online. So now I’m a growth vehicle again, because these states are activating and they will get growth.
But when you look at what really goes into kind of an underlying discounted cashflow analysis, a lot of it is the value in perpetuity. A lot of it is the value of your sustainable growth. And the industry through that lens is really challenging.
It’s almost a disservice to being a publicly traded company that you’re gonna be maximum profitable in year three or year four of a state because your pricing is still reasonably high and you’ve got more critical mass, then you will be in year eight, nine, 10 when pricing’s normalized and you’re fighting that with everyone else and you still might have a very good business, but you’ve shrunk profits during that time period, which is really hard to do as a pump go.
And so that dynamic is, that mixed dynamic is happening inside every one of these MSOs. It’s one of the reasons when we even with Grown Rogue, when we underwrite our move to Minnesota, I kind of come back to, okay, yeah, we’re gonna look better than normal for the first couple of years.
Let’s make sure we articulate that we’re looking better than normal these first couple of years. You shouldn’t pay eight times EBITDA for a business that’s at peak EBITDA. And that dynamic and EBITDA is a shorthand quick and dirty way to get to what’s kind of an estimated version of a discounted cashflow analysis. It’s very, very crude.
We can get into the kind of the esoteric sides of that, but even just using that crude version, I think these arguments that CPG companies might trade at 12 to 18 times EBITDA, therefore cannabis companies should trade at 12 to 18 times EBITDA.
I just chuckle at those because these businesses look nothing like a mature CPG company that’s growing at 5 to 8 % annually or 3 % if it’s super mature. Like those dynamics just aren’t present in this industry yet in part because you’ve got these inflated profit streams, these surplus profit streams in states that are still, pricing’s too high relative to where it will be in the future.
And I mean, I just think those dynamics make public company investing really hard in the industry and the evaluation particularly challenging because it’s a moving target. It’s hard to understand all the dynamics to go into that. And if you think about
And I think Jerry articulated this well in one of our mental bites. If you think about what goes into valuation, what goes into this multiple is both that combination of growth, but also the certainty attached to it. Right? Like you’ll, pay more for a bond in part because you know, you’re getting 5 % every year. So you pay it to get to that. Like I’m getting that 5 % and there’s just loads of uncertainty as to what the growth trajectory actually looks like for a lot of these companies.
Jerry Derevyanny: I don’t want to add on like too long of an answer, but I would just say this, like when you look at even a company like GTI, you don’t have a ton of information, you need to make a lot of guesses to, if I were to tell you, let’s say Minnesota comes online, you know, full on, they got a full functioning recreational system, know, one of, GTI is one of the two main licensees in Minnesota with Vireo being the other one.
And let’s say next year, Minnesota’s fully online, fully ramped up, and they go bonkers over there. But the average retail price per unit in Illinois drops 20%. What does that do to GTI’s financials? Can you even hazard a guess? And so as these cross currents are happening, that’s a very, very difficult thing.
to figure out and you can kinda try to make some guesses but they certainly don’t make it easy for you most of these companies and unfortunately i think people have been doing this kind of like common math of a these trade twelve times even though he’s trying to twenty five times even though so you know now they trade force another cheap maybe they’re not case
Rena Sherbill: I’m going to ask you guys a few things, maybe first I’m going to ask you each if you have the most important thing that you feel like retail investors should have in mind these days and in the days coming.
Josh Rosen: From a retail investor standpoint, and Jerry, you may disagree, and I don’t spend a lot of Jerry’s done more work than I have and with the Canadian companies. But at least you’ve got a level, a more level playing field in terms of how you analyze the companies north of north of our border. I think US cannabis on the publicly traded side is just a very challenging environment to do the analysis and to feel to feel conviction around.
I think the Canadian companies offer a better version of kind of at least an ability to roll up your sleeves and do the analytic work and feel good about the analytic work you’re doing and make your bets. I think the US side is still unfortunately, there’s some interesting companies and some interesting opportunities that exist because of how this market’s playing out. But I think it’s hard to get.
Until you have maturity in a market and real consumer choice, it’s really hard to understand what brands are real, what’s really resonating at a kind of a national level, the types of things that go into what would be durable value. And my instinct is that Canada probably offers better opportunities than the U S for that.
Jerry Derevyanny: Yeah, I would just say don’t play with fire unless you’re really controlling the risk. People should just be honest that if they’re trading around this political stuff, this is just trading, it’s not really investing, they’re playing with fire. And so if it’s money you can afford to lose, go for it. But just be honest with yourself about what you’re doing. If you want to take the lowest effort, of reptile brain way of
doing this, would just take a position in GTI and not look at it for 10 years. And if you don’t want to do a ton of research on the space and all that kind of stuff, if you want to really gamble, maybe options on MSOS or IIPR, just some small portion, it’s not investing advice, obviously, but just realize that you’re gambling. This is like, you can either wager on the Lions game or you can do this. That’s my biggest overall feedback to retail investors.
Rena Sherbill: Here are my quick things, just like 30 to 60 seconds each. Josh, you can go first. First thing, hemp.
Josh Rosen: Hemp is a complicated topic. While at Vireo, we started a hemp beverage line. I spent a decent amount of time. actually think it’s a shame because I think the hemp THC product on the beverage side is a really compelling product from a market development standpoint and would be ultimately provide a lot of harm reduction solutions as well.
That said, I think if THCA flower goes away as it looks like it might, that is net good from an investing standpoint, particularly for the companies exposed to Florida. I think Trulia is probably the biggest single beneficiary, maybe, yeah, in large part because I think THCA flowers has been a pretty pervasive influence in the smoke shops and gas stations there, particularly in the Southeast, broadly, Texas, we don’t really have, we have a couple of operators in Texas, it’s not any real scale for the business yet.
So I don’t think the fact that there’s so much THC flower there has much impact. Maybe it impacts Oklahoma sales. And so really, yeah, I’ve got a of thoughts around hemp broadly. But from an investing standpoint, I do think that it should provide a tailwind to Florida in particular over the next 18, 24 months.
Jerry Derevyanny: Yeah, I think it’s really interesting. think it is the kind of a nice boost to truly even in some of these states where you know, I think Ohio to some extent to some of these states where you’ve had significant encroachment from hemp maybe even Arizona a tiny bit I’m interested to see what politically is gonna happen. I think you know these a Lot of people are using the hemp thing as air cover for basically black market activity I think that
It’s just tough. What a lot of those people are arguing for is effectively federal legalization. I think that’s just almost impossible to get done in a year. One thing, and I just don’t think there’s political will to do it.
One thing that is interesting and the executive order kind of goes to this is, you know, this whole CBD, we’ll see if they give a little bit of leeway there, but the drinks, low dose drinks, I think, are going to be somewhere where you could potentially see some kind of political like you could get enough momentum there that you could get low dose drinks that are treated as alcoholic beverages and basically available anywhere, know, if a state allows anywhere that alcohol is sold.
And I think that probably be a good for society and that would be a good for the hemp beverage companies and be good for alcohol distributors and retailers as well.
Rena Sherbill: ETFs. Jerry, you can take that one first – you just said about options on MSOS but any any further thoughts on ETFs in general?
Jerry Derevyanny: I think first of all, I think there’s a lot of like conspiracy theories about what how these work and the swaps and all this stuff. I mean, for me, you know, I don’t want to dog on. It’s very difficult to put together an ETF portfolio for me. I realizing that I would lose out on some of the beta probably of, of, you know, these stock swings.
I would rather buy just GTI than own the ETF because I think all things considered, other, it’s just, it’s just an easier, better bet.
Josh Rosen: Not much different. You asked the question earlier, and I took it up to Canada from an analytics standpoint in terms of where you can actually do work in the space.
I don’t envy the ETF builders within us cannabis because it’s not a great landscape. It’s not a target rich environment to build a quality portfolio. And so I think if you have to build a portfolio in us cannabis, you end up with some dogs and.
We actually have this conversation inside Drone Rogue about whether we would want to be a bigger part of any of the ETFs in the space and MSOS in particular, because it’s the largest.
And the answer is it’s a little scary because you’re keeping company while there are some quality companies in there. There are some dogs in there and you’re keeping company with a lot of dogs. And, you know, we tend to view ourselves as a small cap growth company agnostic to cannabis. Like we’re building a cannabis business, but the blueprint for what we’re actually building is just a small cap growth business.
I don’t think that’s the lens that very many of the companies in MSOS share.
Rena Sherbill: What would you say are your biggest agreements and your biggest disagreements?
Jerry Derevyanny: I’ve always told Josh that he should start using Rogaine and I think that’s probably the… I joke. What are our biggest disagreements? I think our biggest disagreement is it fair to say Josh that I think the IRS is gonna come after these MSOs with every ferocity that you’ve ever seen and no one else in the industry seems to think that that’s the case.
Josh Rosen: I think that is a place we disagree. think the IRS does come after them and collects, but I don’t think they come after them with penalties. And so that’s probably the place we get the most hung up. think broadly, we disagree on the margin frequently, but we disagree fundamentally very infrequently.
In part because we talk through in very intellectually honest ways that the places we disagree and why, and we will agree to disagree on the margin, but fundamentally we’re pretty aligned with how we view the world and where it’s going.
Rena Sherbill: Sounds like a beautiful partnership, gentlemen. Love to hear it. What are your thoughts for 2026? Jerry?
Jerry Derevyanny: Trouble ahead, trouble behind.
Josh Rosen: I think we’re gonna see a healthier amount of consolidation than we’ve seen recently. I think a couple of the haves and have nots within the MSO landscape, I think the haves in the MSO landscape are getting more aggressive.
And so I think we’re gonna see them be more aggressive. think there are opportunities that are out there for them to be more aggressive. I don’t know if that’s good nor bad at the end of the day, but I think we are gonna see a lot of the mergers that couldn’t close the last few years, I think we’re gonna see a lot of stuff close and be a lot less expensive.
Rena Sherbill: Anything to say to that point about like the public versus private or public and private any any kind of final words?
Josh Rosen: I mean, think the private side, I’m seeing there are some quality players on the private side that I think are also capable of getting more aggressive. And I think the one interesting thread to this federal activity, and I’m kind of a little disappointed the market was off as much as it was because I’d love to see a little bit more of a tailwind on the access to equity side in the industry.
Equity capital is just so hard to come by in the industry and everything gets done with real estate and or debt capital and while debt capital costs for the better credits aren’t ridiculously high anymore. You GTI runs pretty good credit.
We had Grown Rogue, we’re kind 8 % borrowers. It’s still debt and it still changes your behavior with in terms of, know, you risk appetite, how you manage the business. This industry should be significantly more equity financed than it is. And I’m kind of hoping that sometime in 2026 that we might see some access to, you know, institutional capital on the equity side.
And I think that hold back that that view that institutional capital is a play in the space. To me, the real tell will be when new capital comes in, not through MSOS or not through buying publicly traded companies, but actually like writing principal dollars into companies either through a pipe or a or an offering where it’s the formation of capital through equity.
That would be really useful in a lot of places in the industry. And it’s really challenging.
Rena Sherbill: Jerry, any final thoughts?
Jerry Derevyanny: I think the dearly departed, Charlie Munger said, that I think it’s like three ways that, that people blow up and that’s, ladies, liquor and leverage. And so I think the common thread to echo Josh about the good private and public, better public operators is just the responsible use of leverage. the debt loads have created kind of this unsustainable thing that ultimately I think outside of the trading and all that stuff that people don’t realize that a lot of times some of that equity is going to turn out to be worthless or near worthless and people are going to be really surprised by that in the future.
Rena Sherbill: Appreciate you both. you for this conversation. Josh, thanks for joining us. I hope to do this again at some point soon. How can people get in touch with you, both either individually together? Jerry?
Josh Rosen: Go ahead, Jerry. I don’t want people in touch with me.
Jerry Derevyanny: I’m Jerry at BengalCap.com and people can go to our Substack at BengalCapital.substack.com. We’re trying to be a pretty open book about what we think and we’ve got investor letters going back a couple years that people can look at. Frankly, we are always happy to get reason to push back.
Frankly, I’ve gotten some of the best pushback on Glass House from Aaron and at least one other investor is really, really quite smart generalist. And, you know, I don’t agree, but it’s always good to have your, you know, have your thinking checked. And so, yeah, if people want to get in touch, go for it.
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