Background of the 30 Year Wall Street Veteran.
He has a very humble background and didn't come from wealth; instead, he worked his way up to becoming a very successful individual who sold a hedge fund at a billion dollars at his career height. The 1987 stock market crash resulted in wall street drying up, and jobs were hard to come by, so his first job out of college was selling mortgages, then he moved to appraise real estate.
Shortly after that, he owned a Hedge Fund, which became very successful with lots of hard work and associating with the right people in NYC. He's worked many unique and unbelievable jobs overseas for a decent part of his life and experienced many different cultures, which he's quite fond of.
Back in the '90s, when SPACs were untrustworthy, he traded the warrants from the SPAC companies and at the same time shorted the stock, which is known as "Warrant Arbitrage," which many Hedge Funds participate in. He previously tried to advise a company overseas, which he was managing to do a SPAC. Still, they felt like they could make a better decision on their own, only to be proven otherwise that he was ultimately right. Since that previous experience, he wanted to join a SPAC as a Sponsor, and with the changing views on marijuana, he felt compelled to do so.
What do you think about Spac's?
In the early '90s, SPAC's used to be a questionable investment with deals being made with dubious operating companies. In contrast, hedge funds used blackmail tactics to get better economics from the Sponsor. The combination of untrustworthy underwriters, sponsors who brought questionable deals, and a short view hedge fund shareholder base kept the mainstream investors, both retail and institutional, out of the SPAC space
Why do Sponsors and Hedge Funds invest in Spac's?
Being a SPAC Founder/Sponsor, you receive 20% of the companies you take public, so the economics are favorable versus the risks. For initial IPO investors, which are typically hedge funds, their initial investment is held in a trust account. Upon closing a business combination, they have the right to redeem their shares from the trust account at the initial unit price and keep the warrant kicker for free. They virtually have a free look at the business combination and the market, like the deal they sell their stock at the appreciated market price. If not, they redeem their shares. Such a riskless play. Besides, there is an investor group that invests in the SPAC after there Business Combination is announced with a typical long term view similar to investing in an IPO
Any opinions about previous failed Spac mergers?
Only 5% of Spac's fail; most of them are mom and pops. In 2020 most of the Spac's that failed were in the oil and gas industry, with COVID being the culprit. Usually, an extreme market event can cause Spac's to fail. The Sponsors are stuck "Holding the bag" if the investment goes south. Sponsors have significant upside potential, usually 5x their money, and typically are very qualified and know how to approach a great candidate.
What do you think of the Marijuana Industry as a whole?
This is a once in a lifetime play (At least for his lifetime, he believes). It's a vast industry that's becoming a legal, tech like industry, that's simple, but it's an industry that's been illegal for a while, which makes it more appealing and unique. No other sector is unlawful on a federal level, which creates an investment opportunity you probably won't see again. It's also a straightforward process to grow and process the plant.
Wall street views marijuana companies as a "fish in a barrel." Hedge Funds, therefore, have considerable opportunities to pick up the companies at a reasonable price. He believes the market is not oversaturated, which I hear all the time; he says there are many losers and only some winners; some companies burn too much capital or try to handle too much at a time, like expanding in too many territories.
All these companies are striving for capital, and Hedge Funds are willing to put up the money. Concerning Spac's, there are just a few ones pursuing marijuana companies. In my opinion, there is only one with the tools and impressive management to be more successful than the rest.
What's your view on Monocle Research's study showing that 34% of millennials prefer pot over alcohol?
Attitude toward pot is different now than it was a few decades ago. Young people don't look at marijuana the same as the older generation, and it should just continue to be more of a progressive view as new generations are born and time goes on.
Does anyone in your company view posts from either your company or another company on Stocktwits?
The Marketing Team does; he is not big on social media nor, in my opinion, probably doesn't care about views given by amateur investors.
AUTHOR: Caleb Morera (Founder)