Capital is king — She who holds the money holds the power. This industry is cash strapped thus make sure you realize that if you are investing or building a company within it. Remember when we invest or build businesses we are holding our investor’s life work (their money) or our employees’ livelihood in our hands. We need to be good stewards of that by making sure companies do not run out of cash, ever. It’s oxygen.
As a part of my series about strong women leaders in the cannabis industry, I had the pleasure of interviewing Codie Sanchez.
Codie Sanchez is a Managing Director and Partner at Entourage Effect Capital, a venture capital and private equity fund in the legalized cannabis space with $170+M in AUM and has just launched its third dedicated fund for $150MM, making them one of the largest PE funds in the industry. She previously built and led First Trust’s Latin America Investment business. Prior to that, she held positions in equity analysis at Goldman Sachs, institutional fixed income at State Street, and international equity and ETFs at Vanguard ($5.3T). She started her career as a journalist where she won the JFK award and the Howard Buffett Foundation grant for covering human trafficking. Sanchez is a pundit and columnist on investing, macro trends, cannabis, and startups. She has been highlighted on CNBC, The Today Show, Forbes, Fast Company, Entrepreneur, People en Español, Business Wire, Cheddar, etc. She has an M.B.A. from Georgetown University, a master’s from ESADE, a Ph.D. from Fundação Getúlio Vargas, and a B.A. from Arizona State University. She sits on the board of the Arcview Group, the leading cannabis seed investment platform, Magma Partners, a tech focused venture fund in Chile, Hispanic Executive Corporation and is actively involved in American Enterprise Institute, a leading free markets think tank.
Thank you for joining us Codie! Can you tell us the “backstory” about what brought you to the cannabis industry?
For me, it started with three words, generational wealth creation. I still believe we are amongst an industry trend that will have ramifications for decades and be one of the largest wealth, health and societal drivers we’ve seen. Why? I’ve always been a ravenous student of history. As a former journalist that’s what we learn; look for the truth, and don’t let stigma or expectations distract you.
I like to find the numbers through the narrative:
Here are the facts:
- Opportunities are plentiful — Cannabis is projected to hit a job-creation rate of 110% in just three years from 2017 to 2020.
- Demand is growing — 44,000 jobs created in 2019–35% increase YOY (In a major downturn of the cannabis market FYI)
- Cannabis spending grew globally to $17 billion in 2019, and is projected to reach $31.6 billion in 2022.
That’s probably why I first jumped into cannabis, how often do you get a chance to spread the wealth among disenfranchised groups, be part of a movement and reverse societal trends that have been hurting us all for decades. That’s why I believe the winners will not all be monetary, but the wins will be counted in lives, dollars, impact and beyond. And I believe my company Entourage Effect Capital, will be among those winners… all of us doing well by doing good.
Can you share the most interesting story that happened to you since you began at your company? Can you tell us what lesson you learned from that?
Unfortunately, it seems we all always learn the most from setbacks. One sadly common example in this space is what happens when leaders turn into poor stewards for their company and its finances. We were brought into one such company that was weeks away from bankruptcy. I was mortified, imagining a horror story of lost jobs, shuttered businesses and missed opportunities due to negligence. What I quickly learned is how damn critical it is to have the best team possible surrounding you. Three of my fellow partners jumped on planes, kissed their family’s goodbye on the weekend and proceeded to essentially not sleep for 6 weeks in order to turn that company around. That company is now thriving, is a leader in its space, an award-winning company and it is all because Tiffany Liff, Dov Szapiro and Joe Blasetti, had the experience and the work ethic to save that company. This industry is full of humans and companies who make a difference, but it was also full of humans that were looking for a fast get rich quick scheme, those never work out well.
Can you share a story about the funniest mistake you made when you were first starting? Can you tell us what lesson you learned from that?
If I had a nickel for every time I pronounced cannabinoid or Tetrahydrocannabinol wrong in the first year I’d probably be on the Forbes list. I always chuckle when people mistake the cannabis plant and industry as a simple business full of simpletons or stoners. My typical response is to respond with the cannabinoid system inside of us, highlight the importance of terpenes to augment the effectiveness of the cannabis plant, maybe delve into the benefits of the varying extraction methodologies or the science behind biosynthesis and plant genetics. When I begin to see their eye glaze over I know I’ve made my point. The lesson here is: have respect for the plant. It’s a whole lot more than a weed.
Do you have a story about how someone you knew reacted when they first heard you were getting into the cannabis industry?
Oh you mean, most people don’t jump up for joy when their daughter says she wants to be a weed financier? Odd. In all reality, my family was incredibly supportive given its benefits for my aging grandparents and friends who had cancer, in tandem with all the work we were doing with veterans with PTSD. The ones who were baffled were those in my wall street former career. I remember one partner quite high at a leading PE firm said, “You have a great resume, you have done all the right things thus far, why you would throw an entire career away on this risk?” Those words kept me up for many a night but I knew it wasn’t enough to make a lot of money, I needed a reason behind the grind. This brought me back to my roots as a journalist of fighting for the underdog.
None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story?
Yes, Ryan Schlitt actually. He runs a large investment bank and private placement group and used to lead the Credit Suisse team. He’s one of the smartest most strategic people I know, but also an incredibly good human. I called him up right before I was about to make the leap. Let me set the stage, imagine a guy who had spent his entire career climbing the corporate ladder, who had achieved its highest rungs both personally and professionally, who wore suits every day and counted some of the most successful in the world friends and clients. I mumbled out my plan growing louder as I remembered the conviction I had for this team, this time and this industry. Before I could reach my closing point he said, “Do it. Don’t tell me any more, jump before you lose the nerve. You’ll never look back.” He was the only person from my wall street days who said that. Turns out he was right, yet again. I haven’t.
Are you working on any new or exciting projects now? How do you think that will help people?
Yes, I am shouting from the rooftop excited about what we are building at Arcview where I am a board member and we are investors. Just like in every other industry, investors are moving away from seed-stage investing. They are going for companies that are more developed, more de-risked as we say. The problem? Who funds the innovation? The little guy? Who finds the uber/Facebook/tesla or next-gen of cannabis? Arcview is stepping in in a big way. Just you watch to see what happens. For those who get to be a part and join in, it is going to be one heck of a ride.
In your opinion or experience, what 3 things can be done by a) individuals b) companies and/or c) society to support greater gender parity moving forward?
- Individuals — Stand up for one another. I’m terrible at having a quick whip when someone acts against me but go after another in a demeaning way in front of me and you better watch out. No bullies allowed on either side.
- Companies — Get a representative board, make sure you are not bringing on token diversity hires but strategic ones. Who better to sell to 50% of the population than the actual 50% of the population?
- Society — Stop this race to who is the biggest victim. Is it women/Latinos/blacks/LGBTQ etc etc? Instead teach that we are all worthy, resilient, capable and we don’t need handouts or to pit ourselves against one another. Instead, we need to seek to understand one another and find value in disagreement and our differences instead of on one hand praising diversity and on the other lambasting those who have a diverse thought from our politically correct culture. Critical thinking IS NOT a crime.
You are a “Cannabis Insider”. If you had to advise someone about 5 nonintuitive things one should know to succeed in the cannabis industry, what would you say? Can you please give a story or an example for each.
- Capital is king — She who holds the money holds the power. This industry is cash strapped thus make sure you realize that if you are investing or building a company within it. Remember when we invest or build businesses we are holding our investor’s life work (their money) or our employees’ livelihood in our hands. We need to be good stewards of that by making sure companies do not run out of cash, ever. It’s oxygen.
- It’s harder than you think it is — Imagine what you’d pay in taxes if you had not a single write off, not a single allowance, no 401k, no tax decrease if you make less money, nothing. That is the cannabis industry under tax law 280E. Bake that into your projections.
- More people use it than you know — I have met with tens of thousands of investors from wall street to the main street and do you want to know a secret? When I ask if they have ever used cannabis before in some capacity, do you know I have not found ONE PERSON yet who says no.
- The black market won’t transition as fast as we think — The California cannabis market in total is $9B they estimate, the legal market is $3B. That legal tally shrank last year due to all the regulations on the industry. When do you projections include a slower growth rate than you anticipate?
- Trust but verify — It’s an old Russian proverb that applies perfectly. I have an open heart paired with a microscopic eye. Anyone you invest in, partner with, sell to, use as a provider needs to be screened. There are just too many snakes under rocks not to.
Can you share 3 things that most excites you about the cannabis industry?
- Consumption lounges — I personally love me a good glass of red wine. Yet my head the next morning does not feel the same. I am excited about when the industry mainstreams enough that you can go out to a bar and grab a CANN microdose social tonic or a glass of wine if you so choose. We have a long road to get there.
- Off-ramp drug — I’ve heard ad nauseum that cannabis is a gateway drug, aka it leads to other drug usages. Yet experientially what I’ve seen in thousands of cases is that it is actually an off-ramp drug. An off-ramp away from opioids, antidepressants, pain killers, anti-anxiety and alcohol. I’m excited to see if the research proves what I think to be true.
- Tax benefits — Imagine what $100’s of millions or billions of dollars in tax revenue can do for our states across the country. As we onboard more legal states we decrease the black market that sits at a 0% tax rate. Legalization will allow for access, for decriminalization, for potentially decrease in our opioid epidemic and for taxes to perhaps better educate the next generation.
Can you share 3 things that most concern you about the industry? If you had the ability to implement 3 ways to reform or improve the industry, what would you suggest?
- 280E — Get rid of the onerous tax regime on cannabis, this would lead to higher taxes given an expanded tax basis and move away from the black market.
- Safe banking — Allow for banks to federally bank cannabis companies, this allows for debt and capital to be extended.
- Standardized testing & reporting — Industry wide lab testing and reporting would help the consumer feel more confident in experimenting.
- What are your thoughts about the federal legalization of cannabis? If you could speak to your Senator, what would be your most persuasive argument regarding why they should or should not pursue federal legalization?
We’ve had to have many of these conversations and my biggest mistake before has been leading with the numbers because they don’t lie. But politicians are not ahem, the most rational bunch. Thus, I would do little talking and instead give a platform to vets whose lived have been changed, to employees whose families have been provided for, to mothers whose children have been saved from epileptic seizures to elderly who can write a letter again given its effect on arthritis. There are stories worth sharing.
Today, cigarettes are legal, but they are heavily regulated, highly taxed, and they are somewhat socially marginalized. Would you like cannabis to have a similar status to cigarettes or different? Can you explain?
Not at all. In my opinion, it’s like saying vodka and orange juice both are ingested as a drink, thus they should be regulated the same. Cannabis is so far from tobacco it’s hard to count the ways. As of the research we have now it is shown to not be addictive, not cause cancer, help fight some cancers, help epilepsy, depression, anxiety, inflammation, and the list goes on. Do we need more research? Absolutely. Is this tobacco? Not at all. This should be regulated in its own manner, taxes are currently completely unsustainably high and access is a daunting issue for those who need it. I hope our regulators will see that a zebra is not just a horse by another name.
Can you please give us your favorite ”Life Lesson Quote”? Can you share how that was relevant to you in your life?
“Do not let your fire go out, spark by irreplaceable spark in the hopeless swamps of the not-quite, the not-yet, and the not-at-all. Do not let the hero in your soul perish in lonely frustration for the life you deserved and have never been able to reach. The world you desire can be won.” — Ayn Rand
Ayn Rand’s books found me at a low point in my life. Once when I was just beginning on my career and was told I wasn’t enough and wouldn’t ever be. Then again when I was going through my divorce as one of the only two items I walked out of my house with. I lost a sister when I was young, I was a reporter on atrocity and violence along the border and have had a myriad of other setbacks and yet this was arguably the single hardest thing I’ve ever had to. I felt like a complete failure for promising to be with someone for the rest of my life and not keeping that promise. Despite all the horrible things I had been through in that relationship I couldn’t help but feel it was my fault. This quote and these books helped me move through the fire.
You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the greatest amount of people, what would that be?
I started my career as a journalist covering human trafficking, drug smuggling, cartels and violence in a city nicknamed “The City of Death.” I came into cannabis for the generational wealth opportunity as an investor, but more than that, for the legacy of humans who have been decimated by the current system. For those suffering under the opioid epidemic when cannabis may be a non-addictive solution, for those veterans who should have the choice, for those along our border and throughout LatAm who have been under drug cartels thumb due to a plant, for those in the inner cities where they still jail people for what many term a medicine. If I could inspire a movement, it would be for our regulators to see that they don’t have the right to keep their seats in power when 60%+ of the people who put them there want a different solution. That’s the movement for now, then as we say in Spanish Adelante! Or forward to the next one.