Elliot Kallen: Well, good morning, good afternoon, everyone, and welcome to another exciting episode of Meet the Expert with Elliot Kallen. Cannabis. Hemp. That’s our discussion today. We’re going to get into some interesting things about the real estate related to cannabis and hemp and the business related to growing it, not distribution so much, certainly not smoking it, taking it, rubbing it on. That’s not what we’re going to do today. We’re going to talk with Anthony Coniglio from Connecticut, New Lake Capital Partners over there, an East Coast company that specializes in the real estate there. So let me welcome you, Anthony, to the show. Thank you, Elliot. Great to be here. So I’m going to ask you a question of what it means to have a portfolio of cannabis properties and what that means for consumers. And you are a public company, which means people can invest in them. And let me remind everybody, we are Money managers managing a half a billion dollars or so plus another half a billion at a different company. And we help people make money. That’s our goal. So we bring in people like Anthony. And if things like this fit into your portfolio and you want to hear about portfolio construction and how this type of industry fits in, call me. I’m at 925-314-8503 or Elliot, E-L-L-I-O-T at prosperityfinancialgroup.com or prosperityfinancialgroup.com. And so don’t hesitate to reach out. So let’s talk a little bit about the real estate world of cannabis, Anthony. Tell me about it. What does that mean? What does it mean to consumers? What does it mean to investors and so forth? 

Anthony Coniglio: Yeah. So in our business at New Lake, we focus on what’s called the state legal cannabis industry. So as we sit here today, over 40 states have legalized cannabis consumption for medical purposes and 24 states have legalized cannabis for recreational purposes. Because of the Controlled Substances Act, there is a federal ban on interstate commerce with cannabis. So each cannabis company needs to replicate their infrastructure on a state by state basis. And that’s a very real estate capital intensive endeavor. So think cultivation facilities, think dispensaries. In all of these states, you have to sell out of a licensed location. And the cultivation very often happens in a large indoor facility. There are some operators that have large outdoor growths, but by and large, a lot of the production that happens in the industry is in an indoor, typically an industrial facility that’s either purpose built or retrofitted specifically to grow cannabis. And so that requires a lot of capital. And because of the federal prohibition on cannabis, it’s really, really difficult for operators to gain access to capital for cannabis. By and large, banks don’t lend to the industry. And so that was the business opportunity that we saw. And so today, 32 properties, 12 states, 13 tenants.

Elliot Kallen: Exciting. So tell me the difference. I’m going to ask you some basic questions because you think everybody here is a sophisticated cannabis investor and they’re not. They’re just normal people trying to make money, maybe in a frontier business. And we know that three, four years ago when this was out, everybody lost money on these Canadian companies that were doing that. And we were once invested more with them and now not at all. But you know, as the investors look at this, tell me the difference between cannabis and hemp from growing and distribution. 

Anthony Coniglio: Yeah. It’s an important distinction because hemp was legalized in the Farm Bill back in 2018. And it just created a loophole to allow what’s called hemp derived THC. THC is that psychoactive ingredient in cannabis that gets you a high. Cannabis and hemp is in essence, it is the same plant. But hemp is low THC cannabis. Think of it that way. So below 0.3% THC, same exact plant. If it has below 0.3% THC, it’s legal federally as hemp. If it’s above 0.3% THC, it’s illegal as cannabis. That’s the basic way to think about it. But smart entrepreneurial businesses have figured out a way to take hemp, derive from that, the small amounts of THC, further refine the hemp plant to get larger and larger quantities of THC. And those products can be sold in convenience stores and smoke shops in a very unregulated manner. The state legal business where they’re growing plants with much higher concentrations of THC, in some cases 20, 25%, 35% THC, very highly regulated, very highly tested product before it gets into the consumer. That’s the primary difference. Okay. 

Elliot Kallen: I have lots of clients that I put into Scott’s company, Scott’s Miracle-Gro and so forth, because they were also purchasing land or fertilizing the land for hemp growers and for cannabis growers. I keep wanting to use the word pot, but I guess I’m denigrating it with the word pot. Old habits die hard sometimes. But where’s Scott’s in this market, because that’s a well-known Fortune 100 company. Where does Scott’s fit in relative to you guys or totally different or similar? 

Anthony Coniglio: We serve the same industry. They have a business called Hawthorne and Hawthorne is what serves the cannabis industry. So we’re similar that we both serve the needs of the cannabis industry. We’re also similar from the perspective that we’re both what you would call a picks and shovel business to the cannabis industry. And the analogy is from the gold rush. If you look at the gold rush, there’s this saying that the people that really made the money around the gold rush, weren’t the people that went out to strike gold because many of them failed, but it was the people that sold them the picks and shovels. So what Hawthorne does specifically is they sell what I would call a medium to the industry. They sell the soil, they sell the fertilizer product. They sell all that growing medium that’s necessary because at the end of the day, cannabis is a plant. It’s agriculture. And what does Scott’s Miracle-Gro do? They provide supplies for people in the agriculture industry. And so cannabis happens to be a vertical within the agriculture industry that they saw as high growth and an opportunity to really provide their products and services. 

Elliot Kallen: So would you call them the Levi Strauss of the gold mining industry? 

Anthony Coniglio: Yeah, maybe. Again, that was, it’s a picks and shovels business that survived. And again, like us, we don’t touch the plant in our business, but we do provide real estate capital, which is necessary for the operators to be successful. 

Elliot Kallen: Okay. So let me bring it back. I’m located in California. You’re located in Connecticut. These are very different markets. And California is kind of new on the scene with legalized cannabis, long after Colorado did it. And they saw just a massive amount of tax revenue coming in that they could make. But it’s not worked out in California very well. Of course, nothing really, once the federal, the state government touches, works out very well in California. That’s just how it is. But yeah, but they’re working. And the problem that they’re having in California, and maybe let me know if this is a national problem, is that the illegal, they didn’t create laws to stop the illegal flow of cannabis. And there’s so much of it out there, and it’s priced better than legal, that it is killing the legal industry. Am I accurate in what I’m saying to you, Anthony? 

Anthony Coniglio: I think you’re, I think you’re largely accurate. And a big component of that is the taxation of the product on a state legal basis. What we’ve seen in California and in other states is when the state imposes a large taxation regime on the product, it elevates the price point for the consumer. And so let’s unbundle this with some data. Estimates are that there’s about a hundred billion dollar cannabis industry, and only less than a third of that, call it roughly $30 billion, is in that state legal market amongst all these states that I described earlier as being legal. So you have two thirds of cannabis being sold illegally in the US. So consumers are there, and the opportunity in cannabis is switching that buying behavior from the illicit channel to the legal channel. And price point is a critical component of that. And when you layer on 15, 20, 25% taxes, it becomes really, really difficult to move the consumer from the illicit to the legal market. My last point on this is we could, at a different time, go into the details in some of the states, like Massachusetts or Michigan, where we saw the price point come down significantly in the legal channel. And you saw unit volumes go up significantly because what we believe is happening is people are changing their buying behavior from the unregulated illicit market into the highly regulated and tested legal market. And it makes sense if you get regulated, tested product for a similar price, you’re probably going to opt for that. 

Elliot Kallen: Well, if you think about the, for those who study history, and I think of myself as a great student of history, and we look at the 1930s when we went from prohibition to a legal liquor market, it took years to get that in place. And it took the GMED, and it took breaking up people with stills before you finally got all that liquor to be federally stamped and revenue collected like it is today. The cannabis industry is not going to be any different than that. It’s going to have the GMED, the legal stamp at some point. Somebody in Congress is going to say, let’s make this legal. Let’s study it. Let’s create products for people like me, whose knees and back hurt every single day so we can get rid of this pain and get through the day without having to pop 800 milligrams of Motrin to get through this. And I know that’s coming, but it’s not there yet. Yeah.

Anthony Coniglio:: You’re absolutely right. As we sit here today recording this, we have two presidential candidates that have both said that they support cannabis reform. And what’s really interesting is we have a presidential candidate that lives in a state where adult use is on the ballot. That’s President Trump, excuse me, former President Trump, is a Florida resident and on the ballot this November is an initiative to allow adult use cannabis. And he has come out and specifically said he is going to vote for that. You also have Kamala Harris saying specifically she wants to legalize recreational marijuana. So you have two presidential candidates in this country that are pro-reform. And what makes it more difficult is this patchwork of state rules. And so the rules in Missouri are very different than the rules in California. So we do need that federal reform and hopefully we can get one of these candidates to really be the champion for the industry. 

Elliot Kallen: Yeah, we’ll see what happens on that. Good luck in California. Because I know California has its teeth out and its nails sharpened looking for tax revenue for anywhere they can get in. That brand new cannabis industry is going to be it. 

Anthony Coniglio: And a lot of the states moving east have learned from what has happened in Colorado and California. So when you look at the eastern states, they tend to take a very different approach to their medical marijuana and their recreational cannabis programs by having more limited license structures, maybe not going as hard on the taxation. They certainly do tax it. And you’ve actually seen some much better constructs in a state like Missouri or a state like Pennsylvania, which is still medical, or in Ohio or in Illinois, et cetera. Not everybody gets it right. Certainly New York has had their issues, but they’re starting to get a little bit on the right track. 

Elliot Kallen: Great. We’re talking with Anthony Caliglio here at Meet the Expert with Elliot Callen. If you want to reach us, I’m at Elliot, E-L-L-I-O-T, at Prosperity Financial Group, or it’s www.prosperityfinancialgroup. Reach out to me, 925-314-8503, for this and 70 plus other episodes on Meet the Expert with interesting people like Anthony. And we’re talking about the real estate part of hemp and cannabis, which is a little twist on is this product going to become legal or not? Of course, if the product becomes legal and you’re in a real estate business, you’re going to have a boom. If the product gets held up, like in California, and they can’t manage legal and illegal, then it doesn’t help the companies like him. And our job is to find companies like Anthony’s, which is New Lake Capital Partners, a public company, and see if that fits in with people’s portfolios or package it as an ETF world or mutual fund world or whatever it is out there. So let’s talk about who you’re competing with and what makes you different out there in the cannabis real estate world. Your biggest competitor is who? 

Anthony Coniglio: Yeah, our biggest competitor and really our only competitor right now would be what’s called IIPR. And when you look at the landscape, when we started this business nearly six years ago, there was a much more competitive landscape than there is today. We actually have fewer competitors today than when we started the business a couple of years ago. Banks generally, by and large, don’t serve this industry. And the reason is because it’s federally illegal. Most landlords can’t provide space because most landlords have debt on their buildings. And when they rent out to a tenant, they have to provide the rent roll to the bank. And there’s a clause in all real estate debt, which says that you cannot rent to somebody who breaks the law. And so as soon as they send in the rent roll, the bank says, we’re going to call this loan or you need to kick out the tenant. Hence the opportunity set for us. We’ve been able to arrange our business so that we can provide that capital so that we can borrow, so we can raise capital in the public markets and provide it out to our tenant base. There are a handful of banks around the country that may provide some mortgage lending, but by and large, there’s not a lot of competition there in this space. It’s also a very difficult space to provide capital to, because as you said earlier, lots of people have lost money over the last couple of years, and it’s part of why we have less competition today. Yeah. And I 

Elliot Kallen: want to talk about clouds, because clouds are the negative world and every company has to look out at the horizon and see what the clouds are there. And so last summer, I believe it was in one of the California national, maybe state parks, there were, the police stumbled across six kids that were camping there. All six were dead. All six had gotten high and the cannabis was laced with fentanyl. And so we live in a world, sadly, very sadly, where fentanyl, basically a recreational drug can kill you now. And it didn’t used to be like that. When I was growing up, that wasn’t a conversation we ever had, period. But now we have to have that conversation. What does that do for future investments? And the fear that if we make this legal too much or we put too much emphasis in, we are helping the Mexican cartels and China produce more fentanyl and kill our children. 

Anthony Coniglio: Yeah, I would say, first off, it’s a terrible story and should never happen. I would venture to bet they did not purchase that product in the state legal channel. And it’s an argument for why we need to have greater regulation, greater control over the products. And so the people are buying this product, as I said earlier, a hundred billion dollar industry in the US. Let’s buy that product in a state legal channel or even a federally legal channel. Let’s buy safe, regulated, tested products so we can be sure that that never happens again. I’m not a politician now, but really that is the case. And when you look at the incidents of people going to a hospital for cannabis consumption, I think a large part of that is it’s bought outside of the state legal channel where it’s not controlled, where you can buy hemp derived products. I can’t imagine why anybody would lay something with fentanyl, perhaps it’s co-contamination. But when you’re in the state legal channel, the opportunity for that to happen, I’m not going to say never, but it’s got to be pretty darn close to never given the strict approach that you have to take to operating under those regulations and laws. 

Elliot Kallen: Okay. Let’s talk to the over 50, over 55 crowd for one moment. Not about investing in their company, but that legitimate need for these type of products because they’re using alternative products to this that are very legal and some by prescription and some very unsatisfied with the results like myself. I think for a guy who used to be a jock when he was young and played a lot of sports and threw his body in front of hockey pucks and football players and thought he was Mike Ditka on any given day or Bobby Orr, you throw your body out there, when you start crossing those 55 markers, you wake up hurting every single day. Your neck hurts, your knee hurts, your hips are killing you, you got titanium in different parts of your body. The world of hemp or the world of cannabis, not necessarily the world of getting high, but the world of alleviating pain and sleeping better is intriguing, exciting, and I think opportunistic for somebody in my generation. That helps you. That plays into your world and new partners because we’ll create more product because there’s more demand and so forth, all the wonderful things that you’re hoping happens on a national level. What should I be as a consumer now? I’m not an investor, but I’m a consumer now as well. I’m one of those people that I don’t buy these products. I rarely walk in a store, I’m not 100% comfortable, I don’t feel it should be like these products are really been tested or scientifically put together and maybe they all are and they’re not in my mind done like that. Certainly gummies are about haphazard or random because gummies, we know even good products with gummies, they have a problem with efficacy in gummies, period. They just do. That’s the nature of the gummy product. What should I be looking at in the hemp and eventually in the cannabis? I’m in California. What should I be looking at that’s going to change my world, rock my boat, so to speak?

Anthony Coniglio: First and foremost, I think you should be talking to somebody in the state legal business, one of those licensed dispensaries where you can go in and you could have an educated conversation or excuse me, a conversation with people that are educated and can educate you. I see this consultative approach. We own 17 dispensaries in the portfolio and I tour dispensaries all the time and I am in the over 50 category with you. It takes a while to shed that, right? We’ve grown up in a society that really has viewed cannabis consumption very, very negatively and it does take a while to shed that, feel that stigma that you’re doing something wrong. When I tour these dispensaries, I see these conversations happening all the time about whether it’s for this, a shoulder or a knee, whatnot. I even talked to one, they call them bud tenders. I even talked to one bud tender on one tour where he celebrated earlier that day the one year anniversary with a patient of his where they had weaned him off of opiates. He had come in, he was on opiates. He said, I want to wean myself off and he was able to replace the opiates for pain management with cannabis, which was a much healthier choice. So I’d say find that licensed dispensary, have those conversations. Listen, there are so many anecdotal stories that we’ve all heard about friends and family who’ve had success, whether it be somebody who has Cancer that wants appetite stimulation or that wants nausea control or somebody that just wants some pain relief. We need more research in this country and that’s why what’s happening right now with the potential rescheduling, the DEA is evaluating rescheduling from schedule one to schedule three. We need more research. And by schedule one, research is really stifled. By moving it to schedule three, we could get much more research. So we could come to you as an industry, Elliot, and we could say, we’ve done two years of studies on 3,000 patients and we know that this particular compound of cannabis will give you that knee relief that you’re looking for. 

Elliot Kallen: Well, that’s pretty exciting, isn’t it? I hope you’re right. I have friends who are doing cannabis, very smart, very wealthy friends that are doing it to sleep better at night, but they’re also doing it to get high. So they’re doing their gummies with wine or gummies with whiskey and I’m like, okay. 

Anthony Coniglio: Think of it this way, you’re seeing a replacement happen with the younger demographic and we have some charts about this in our investor presentation where we show the younger demographic is actually replacing liquor with cannabis. They’re consuming more cannabis and less liquor. And why is that? You consume cannabis, you’re not going to have liver damage from consuming cannabis. You’re not going to have the hangover you necessarily get from cannabis. You’re not going to have some of the other physical elements. We have thousands and thousands of people a year dying from alcohol consumption, not even talking about on the.

on the roads. I’m just talking about liver damage and other health issues. You don’t see that with cannabis. And I think that younger cohort understands that and is getting comfortable. If they’re gonna relax with a product, they’re looking at cannabis versus alcohol. 

Elliot Kallen: It’s very interesting. You’re so right. And we talk about investing and making money because that’s our business. And if that’s something that you want to do, let me know. I know the Diageo and the Constellation folks and the people that have shelving, you might say out there for hard liquor have realized that the under 40 crowd is a hard liquor crowd and a cannabis crowd. And then the over 40 crowd is more still hard liquor. I mean, whiskey is probably more popular now than it was a decade ago. That’s just a vodka product. But yeah, and people like me that love wine and have a thousand bottles of big red wine are getting the population of that group is shrinking as yours, so to speak, the hard liquor and the cannabis industry grows. So the wine industry would like to put a bullet on your back because you’re not helping them. And the hard alcohol industry is saying, if you’re really my competition, I’m not a happy person with you. It’s hard to win in that case. 

Anthony Coniglio: Constellation brands invested billions into this industry. Constellation saw the trend back in 2018, 2019 and made a multi-billion dollar investment into a Canadian company, which in turn made investments into the US. And so Constellation, when you go back and you see the reasoning for their investment, they knew it was legal in Canada and they wanted to be early to be able to learn and somewhat have a hand in how it gets legalized in the US because they wanted to replace that lost revenue they expected to occur with the transition you just described. 

Elliot Kallen: Well, that’s smart business, no doubt about that. Constellation is a well-run company. 

Anthony Coniglio: Well-run company. The investment itself, if you looked at it, hasn’t worked out for them entirely. They’ve had to restructure. But I think they see the long-term trend and it’s just gonna be a matter of time. 

Elliot Kallen: Yep. So Anthony, how do people reach you if they’re interested in more information and how do they reach you if they wanna, besides investing through us and your company, what’s the symbol and how do they get more information? 

Anthony Coniglio: Yeah, so our symbol is NLCP, New Lake Capital Partners, NLCP. You could find us at newlake.com, newlake.com. We have an investor page. Given it’s the cannabis sector, not every broker-dealer will allow you to invest into our stock. We actually have a dropdown page on our investor page about the broker-dealers. We typically see allowing custody of our stock. 

Elliot Kallen: Yeah, we do that. We clear on the Schwab platform our custody on Schwab. So we rarely get boxed out of anything. 

Anthony Coniglio: And that’s where I’ve bought my stock. I’ve been a buyer of our stock in the market as well during some open periods. 

Elliot Kallen: Yep, good for you and good for Schwab. Thank you, Schwab, for doing that. It used to be thank you, Mother Meryl in the old days. They’re one of the people that probably you’re fighting with on stuff like that, I would imagine. So we’ve been talking with Anthony Canigula of New Lake Capital Partners. We’ve been talking about the real estate world and the cannabis world and the hemp world and why it works out really well from an investment standpoint. Maybe it’s a little bit early because one of these congresses out there, maybe the next one, is gonna go and make this legal just like alcohol became legal in the 1930s and the temperance movement was 100% opposed to it. There are always gonna be people that are 100% opposed to any type of thing like this. And I get that. I understand that it’s fundamentally or religiously against their values. Good, stay away from it. Let’s talk about how to use it. Anthony, thanks for being part of our show today. 

Anthony Coniglio: Thank you, Elliot. I really appreciate it. One final thought on We Agree. Pew and Gallup polls show 70% of Americans believe that we should legalize cannabis. What do we as Americans all agree to to the tune of 70%, not much? 

Elliot Kallen: Not much, and I would be in at 70%. People can make grownup choices and let’s make that thing work for Americans. It’s silly that it’s untested and not well put together by the federal government. So thanks for being part of the show, everybody. You’ve been listening to Meet the Expert. We’ll see you again. Elliot at prosperityfinancialgroup.com. Have a great day, everybody.