Interview: The king has yet to be crowned

An interview with Troy Dayton, CEO, The Arcview Group

Recently named as one of Fortune Magazine’s top seven most powerful people in the cannabis industry, Troy is an elected board member for the Marijuana Policy Project and was formerly their top fundraiser and lead liaison to the legal cannabis industry. He is a founding board member of the National Cannabis Industry Association and co-founder of Students for Sensible Drug Policy, which is now on over 200 campuses. Troy also helped launch Renewable Choice Energy, which was recently named the #1 green power provider by the EPA.

CCI: What was your opinion on Colombia when you came in September? Where do you think the market’s going?

TD: It was my first time in Colombia and I was very impressed with the turnout at the Cannabiz LatinoHub, both in terms of local and international investors. I felt like the market was more nascent than I expected. The companies raising capital are at a very early stage. That’s a good thing. The early stage is where the opportunity is.

Colombia is in a very interesting place, but it seems like the domestic market is not currently growing enough to support the new businesses. That means that export is the most important item to get right.

Colombia has huge opportunities because of its highly educated yet low-cost workforce, and the Equatorial regions are great for growing. It is one of the first countries to have an economy that can generate exports, and Colombia has a great exporting history and expertise.

On the downside, it seems the government is not very industry friendly, and they’re not making it easy to export. I think the big problem is that Mexico is coming next in legalization, and they have a lot of the same benefits that Colombia has. The difference being they have a very favorable government and they’re a much larger country and exporter. There is not a king yet in the low-cost cannabis export, and Colombia has a chance to do it but it’s not going to be easy.

CCI: Do you expect Canadian and European markets to be protectionist in their domestic markets?

TD: Of course, it’s going to be complicated from that perspective. Regulators often want to protect local industries. The issue is of a concentrated benefit with a dispersed cost. Taken as a whole, it would be far better for Canada to import low-cost cannabis. It would be way better for patients and make for a more efficient market. But then a few people are getting a big benefit from having a cultivation oligopoly. Companies are very committed to holding on to that control, especially if they can’t compete with much lower cost products.

CCI: For you, what were the problems in the financial sector in the US and how would the SAFE Act help US companies?

TD: Right now, many companies have a hard time getting bank accounts because there are very few banks willing to take the risk of doing business with a cannabis company. Those that do have to do a lot of work to check everything is perfect. There are some guidelines right now, but they’re not well used. SAFE would really open it up and reduce the cost of both doing business and the cost of capital.

This is because it opens up access to loans and institutional investors who see the cannabis industry as a bellwether for them. It’s not quite federal legalization, but it will be a major step towards warming up other Fortune 500 and public companies that will be willing to take the leap into this space.

It doesn’t directly cause that, but it’s a signal that would have people moving into the space thinking legalization is right around the corner. In Colombia, it probably makes a big difference too.

CCI: Would the SAFE Act open up a space to list in NYSE?

TD: I think banking has an impact on that, but the rules are very different. Ultimately, the federal government needs to admit that states can make their own decisions. Not on an appropriation spending bill like it is currently, but with a bill that changes federal law. I would say we’re probably one to three years away from that. That wouldn’t make it legal in every state, it would make it legal in the states where it’s legal.

CCI: Have institutional investors lost their appetite for cannabis as a result of the current market downturn?

TD: The big players don’t pay attention to the ups and downs of the market. Institutional investors thinking in the long term are salivating right now. This is a long-known correction in the market, and that makes these companies more excited to get in. A lot of them are holding their chips because they think there’s more to fall, they want to see how the banking situation goes. There is a lot of uncertainty, and they’re focused on understanding this market because they know it’s going to transform their business. They’re trying to figure out how and when to enter the market.

CCI: Do these institutional investors look at the Latin American market?

TD: In fact, yes, a lot of these big institutional players first get really excited about the cannabis industry and they start looking at the US. Then they see all the issues and think there’s no way they’re getting approval on something so uncertain, and then they think about the international market. What they find is a very small market, it’s really nascent companies and Fortune 500 companies are not just going to do it themselves. That’s changing, slowly though.

CCI: How should Colombian cannabis companies pitch their projects to foreign investors?

TD: I would suggest hiring an expert in cannabis projections, you have to at least get a few advisors involved early or at least know the signals. There are some signals like pricing projections that don’t bode well.

Five years ago, you could have a fluffy deck for a cultivation or processing company, and that could get you some money. The market is different now, and investors know what they’re doing. When the deck isn’t built for them, they know it and it’s a signal. The other thing is they have people from other industries and no one from cannabis, and executives who have never been in the cultivation industry. Teams who lack the mix of cultivation and culture have too big blind spots.