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Ep. 375: The Paxhia, Poseidon Asset Management

Cannabis Economy Podcast
Ep. 375: The Paxhia, Poseidon Asset Management

Ep. 375: The Paxhia, Poseidon Asset Management

The Phaxia on investment opportunity: “This is a fantastic period of time for investing in the space. Canada has not waited. They have war chests on their balance sheet of cash, not really much more they can build out in their market, so they’re eyeing other opportunities. The US is a huge opportunity set for them. They’re coming.”

Transcript:

Seth Adler: It's me. It's the Paxhia.

Emily Paxhia: It's the Paxhia.

Seth Adler: I mean, does anybody else call you the Paxhia?

Emily Paxhia: Just Seth.

Seth Adler: That's my favorite thing. It really is.

Morgan Paxhia: You own it.

Seth Adler: It really is my favorite thing to do.

Emily Paxhia: It's the best.

Seth Adler: Yeah. You guys know I am a sibling but not quite the same way you are, and really, who is? Is there another sibling outfit int he cannabis industry I wonder?

Morgan Paxhia: Well there's quite a few, I mean the DeAngelos are probably the legendary.

Seth Adler: Oh sure, the DeAngelos. Yes, okay, fine.

Emily Paxhia: The Dalton boys. Jeff and Troy.

Seth Adler: The Daltons of course, sure. [inaudible 00:01:35] And we're staying in similar territory there.

Emily Paxhia: Do we have a brother sister team?

Seth Adler: That's I guess a better question.

Morgan Paxhia: No.

Seth Adler: Well, yeah we do Morgan, we do.

Emily Paxhia: Who?

Seth Adler: It's you.

Emily Paxhia: Oh us.

Seth Adler: Yeah, Emily and Morgan Paxhia.

Morgan Paxhia: If anyone ever does come in as a brother sister team, just remember that we are the OG brother and sister.

Seth Adler: OG sibling, yeah. What would it be? Is there a fun way to say male and female?

Emily Paxhia: We just say siblings.

Seth Adler: Siblings. No, but I'm saying, a brother, two brothers, brothers. That's one word.

Emily Paxhia: Brothers!

Seth Adler: Siblings is only partially descriptive.

Emily Paxhia: You're absolutely correct, yeah.

Seth Adler: We're probably not here to talk about this. We should probably move on.
Thank you so much and here we are in the brand new HQ. The beautiful Poseidon logo on the wall, and here we are in San Francisco.

Emily Paxhia: Yes.

Morgan Paxhia: My wife actually painted that.

Seth Adler: Really?

Morgan Paxhia: Yeah.

Emily Paxhia: Yeah.

Seth Adler: That's a very good job.

Emily Paxhia: That's a very good job.

Seth Adler: It looks like it's, what's that called, when you put it on the thing and then the thing does it for you?

Emily Paxhia: A stencil.

Seth Adler: Stencil! Is that what it was?

Morgan Paxhia: We had a projector and she stenciled it out and then we did all of the fading and everything.

Seth Adler: Wow.

Emily Paxhia: She puts the rest of us Paxhia girls to shame with her creative capabilities.

Seth Adler: That's interesting. You accept her as a Paxhia.

Emily Paxhia: Oh yeah. Full blown.

Seth Adler: How many years has she been a Paxhia?

Morgan Paxhia: Married six, just over six years now.

Seth Adler: And then more than that otherwise.

Morgan Paxhia: Yeah. Been together ten years.

Seth Adler: Right. So it's been a decade. How long have you guys been in cannabis again? How long is that?

Emily Paxhia: We're in our 5th year officially, but a couple of years before. So about 7.

Seth Adler: Half a decade, three quarters of a decade.

Emily Paxhia: Two thirds of a decade.

Seth Adler: What's different about 2018 than before it for you guys?

Emily Paxhia: I'll start. In 2018 started off like a lead balloon. Woke up basically crying all day so happy that California was opening.

Seth Adler: Finally.

Emily Paxhia: Knew it was going to be rocky.

Seth Adler: That's a kind way to say what we all thought.

Emily Paxhia: Yes. We knew there would be tremendous friction points going forward, but what we did not know is that Jeff Sessions on January 5th was going to suck.

Seth Adler: Oh right, remember that? He rescinded the cole memos

Emily Paxhia: Yeah, it was horrible. Capital just ran running for the hills away from the industry and we were originally in fundraising mode at that point.

Seth Adler: Let's dive in there. Let's re describe what Poseidon is so that folks that are just catching up now understand it, number one, so go ahead.

Emily Paxhia: Poseidon is a firm that now has two funds dedicated to the cannabis industry under it's umbrella.

Seth Adler: So you were looking for funding and you're dialing for dollars, so to speak, as Janis Joplin, who used to live in this neck of the woods, would say. Then all of a sudden, what, people stopped calling you back? How would you describe it from your point of view? How precisely did It happen?

Emily Paxhia: People pulled away from the sector wholesale and not just because they were concerned about the risk associated with the investment, it was more of their exposure to it with an Attorney General who had stepped forward and had made... We like to say they were more like representations of concern, but not necessarily potentially action points of concern.

Seth Adler: It's me. It's the Paxhia.

Emily Paxhia: It's the Paxhia.

Seth Adler: I mean, does anybody else call you the Paxhia?

Emily Paxhia: Just Seth.

Seth Adler: That's my favorite thing. It really is.

Morgan Paxhia: You own it.

Seth Adler: It really is my favorite thing to do.

Emily Paxhia: It's the best.

Seth Adler: Yeah. You guys know I am a sibling but not quite the same way you are, and really, who is? Is there another sibling outfit int he cannabis industry I wonder?

Morgan Paxhia: Well there's quite a few, I mean the DeAngelos are probably the legendary.

Seth Adler: Oh sure, the DeAngelos. Yes, okay, fine.

Emily Paxhia: The Dalton boys. Jeff and Troy.

Seth Adler: The Daltons of course, sure. [inaudible 00:01:35] And we're staying in similar territory there.

Emily Paxhia: Do we have a brother sister team?

Seth Adler: That's I guess a better question.

Morgan Paxhia: No.

Seth Adler: Well, yeah we do Morgan, we do.

Emily Paxhia: Who?

Seth Adler: It's you.

Emily Paxhia: Oh us.

Seth Adler: Yeah, Emily and Morgan Paxhia.

Morgan Paxhia: If anyone ever does come in as a brother sister team, just remember that we are the OG brother and sister.

Seth Adler: OG sibling, yeah. What would it be? Is there a fun way to say male and female?

Emily Paxhia: We just say siblings.

Seth Adler: Siblings. No, but I'm saying, a brother, two brothers, brothers. That's one word.

Emily Paxhia: Brothers!

Seth Adler: Siblings is only partially descriptive.

Emily Paxhia: You're absolutely correct, yeah.

Seth Adler: We're probably not here to talk about this. We should probably move on.
Thank you so much and here we are in the brand new HQ. The beautiful Poseidon logo on the wall, and here we are in San Francisco.

Emily Paxhia: Yes.

Morgan Paxhia: My wife actually painted that.

Seth Adler: Really?

Morgan Paxhia: Yeah.

Emily Paxhia: Yeah.

Seth Adler: That's a very good job.

Emily Paxhia: That's a very good job.

Seth Adler: It looks like it's, what's that called, when you put it on the thing and then the thing does it for you?

Emily Paxhia: A stencil.

Seth Adler: Stencil! Is that what it was?

Morgan Paxhia: We had a projector and she stenciled it out and then we did all of the fading and everything.

Seth Adler: Wow.

Emily Paxhia: She puts the rest of us Paxhia girls to shame with her creative capabilities.

Seth Adler: That's interesting. You accept her as a Paxhia.

Emily Paxhia: Oh yeah. Full blown.

Seth Adler: How many years has she been a Paxhia?

Morgan Paxhia: Married six, just over six years now.

Seth Adler: And then more than that otherwise.

Morgan Paxhia: Yeah. Been together ten years.

Seth Adler: Right. So it's been a decade. How long have you guys been in cannabis again? How long is that?

Emily Paxhia: We're in our 5th year officially, but a couple of years before. So about 7.

Seth Adler: Half a decade, three quarters of a decade.

Emily Paxhia: Two thirds of a decade.

Seth Adler: What's different about 2018 than before it for you guys?

Emily Paxhia: I'll start. In 2018 started off like a lead balloon. Woke up basically crying all day so happy that California was opening.

Seth Adler: Finally.

Emily Paxhia: Knew it was going to be rocky.

Seth Adler: That's a kind way to say what we all thought.

Emily Paxhia: Yes. We knew there would be tremendous friction points going forward, but what we did not know is that Jeff Sessions on January 5th was going to suck.

Seth Adler: Oh right, remember that? He rescinded the cole memos

Emily Paxhia: Yeah, it was horrible. Capital just ran running for the hills away from the industry and we were originally in fundraising mode at that point.

Seth Adler: Let's dive in there. Let's re describe what Poseidon is so that folks that are just catching up now understand it, number one, so go ahead.

Emily Paxhia: Poseidon is a firm that now has two funds dedicated to the cannabis industry under it's umbrella.

Seth Adler: So you were looking for funding and you're dialing for dollars, so to speak, as Janis Joplin, who used to live in this neck of the woods, would say. Then all of a sudden, what, people stopped calling you back? How would you describe it from your point of view? How precisely did It happen?

Emily Paxhia: People pulled away from the sector wholesale and not just because they were concerned about the risk associated with the investment, it was more of their exposure to it with an Attorney General who had stepped forward and had made... We like to say they were more like representations of concern, but not necessarily potentially action points of concern.

Seth Adler: Got it. It's just bad. People are not necessarily going to do anything about it.

Emily Paxhia: That's right. He set it up so that they could certainly do things about it, which is what scared a lot of people off. We kind of felt like, it's kind of like when you're afraid of the dark. What that is is a fear of the unknown. What we felt, for us, was actually Jeff Sessions named what he was doing. He put it out there, so now it was known. It was a known entity that we could navigate, but for people who were just investigating the space, who potentially are family offices with large names and a lot at risk, they were not interested in being made an example of.

Seth Adler: "I literally can't put my name to that now."

Emily Paxhia: Exactly. It was a bum out.

Morgan Paxhia: That lasted for what, a quarter? Yeah through the quarter. It was really chilled the space pretty aggressively. Actually for us, it was the best thing. It couldn't have been better for Poseidon.

Seth Adler: Because?

Morgan Paxhia: Well, we doubled down our focus back into Fund 1, we brought in some additional capital and got a lot of fantastic assets in there. During that time because people were scrambling and we were just performing. We knew what we needed to do, we knew where we wanted to invest, and we were there. People saw what we had already build and so they were very interested in participating in that.

Seth Adler: So inbound calls increased.

Emily Paxhia: For the existing fund, yes, and deployment of capital increased, the velocity of our deployment increased because we'd essentially be in diligence on these companies for years and then the opportunity came up and we were able to step in in a good way and participate further.

Seth Adler: Let's describe Fund 1 versus Fund 2.

Morgan Paxhia: Sure. So the difference, Fund 1 is a hedge fund, which was out of necessity really. When we were looking at this industry originally [inaudible 00:07:11] amount of capital you could deploy, very hard to assess how this landscape was going to unfold. The hedge fund gave us this evergreen like structure where we could continue to grow and invest over a longer period of time. Really that's what we've done for 5 years with that fund. Capital's been coming in, we've been investing. That was the tool for us to be able to participate in a lot of different ways throughout the industry. It's a very diversified strategy, it's has something like 35 position in it's still[inaudible 00:07:45] all across the US, Canada, to a lesser degree, we've actually pulled back.

Seth Adler: Pulled back from Canada?

Morgan Paxhia: Yep.

Seth Adler: That doesn't make sense to me as a human being with a brain. Can you explain why?

Morgan Paxhia: It's really an ROI discussion. For us, we have fantastic opportunities to invest in the US where valuations were far lower with a very large addressable market, a lot of friction points that we're used to, so we just thought we could generate higher returns for our investors by redeploying here.

Seth Adler: Got it.

Morgan Paxhia: That's really played out very well for us.

Emily Paxhia: Yeah. Our job is to be ahead of where the masses are moving, because otherwise we're not going to offer a unique value proposition for our investors.

Seth Adler: I've got to get the wind before the other people do, to do a sailing analogy.

Emily Paxhia: I was just going to say that's exactly right and you would win a sailboat race with that.

Seth Adler: Anticipate the shift.

Morgan Paxhia: That's right.

Seth Adler: So Fund 2, differently, would be what?

Morgan Paxhia: Fund 2 is going to be much more of a traditional venture capital kind of strategy. Now that the industry has matured quite a bit more, we started looking at the landscape again and seeing we have this great foundation with Fund 1, how it's invested and then what is really still is this open opportunity landscape for what we're versed at doing now, since we've been doing it so long, and what we've cultivated as strong deal flow. We felt very confident in committing to more of a fixed type structure where we have a capital commitment period, an investment period and harvest period. Much more fundamental venture capital structure, so, won't be doing publics, docs, like we have a bit in Fund 1. It'll just be focused on private companies later stage. We have various verticles we'll be targeting with that and already have some great companies lining up for that.

Seth Adler: Both operating. You're going to keep both going, is my question.

Emily Paxhia: Yes.

Morgan Paxhia: Oh absolutely. There still is a ton of opportunity for Fund 1 to continue to generate great returns and we have a lot of fantastic investors that are looking for future gains and now saying "Okay we're ready to start getting out now."

Seth Adler: When you say you have companies lined up for that, what do you mean?

Emily Paxhia: We have investment opportunities lined up. The next places we'll be deploying capital are right in that pipeline getting diligenced right now and ready to go.

Seth Adler: So obviously this is at least proprietary information at the moment, what can you share?

Emily Paxhia: In terms of the types of companies?

Seth Adler: What are you seeing now that you weren't seeing before?

Emily Paxhia: Right. It's more just about the stage of the company that we're focusing on now, which is that they're generating revenue and sometimes quite a bit of revenue. Before, we were kind of side stepping equity investments in some of the more plant touching opportunities just for fear of price compression, market dynamic issues, but now we've really started to figure out how we want to participate in that from an equity standpoint. We feel like we have a better gauge of who we think are the lasting players on that side so that we can think about who are the consolidators and we want to participate with those groups.

Seth Adler: Who will last through price compression which is of course still going on.

Emily Paxhia: Exactly. Every market that opens up will see likely a rise in prices and then a drop.

Seth Adler: Peak. Valley.

Emily Paxhia: An example of a Fund 1 company that we love for that is GTI, Green Thumb Industries, multi state operator. Right now I feel like they're positioned very well to continue to expand their reach. The nice thing about them, we're friends with some of them from being in the industry together all pulling on the same ore. We feel like if those groups enter other states and acquire other companies, we feel better about that than some other people because we feel like they're a people focused organization and they really do have a mission behind what they're doing which is not just to get insanely wealthy, but also to actually build something that's going to last.

Seth Adler: They know how to find talent, the right kind of talent no matter the geography.

Emily Paxhia: That's right, or at least that's the goal.

Seth Adler: They've demonstrated this so far.

Emily Paxhia: Yes, they have.

Seth Adler: We've got a little bit of runway.

Emily Paxhia: Yes.

Seth Adler: Okay. So, if I'm listening to you and I've heard about the thing and then now everything calmed down about the Sessions rescinding the memos, and maybe I even am aware that FinCEN Guidance was not rescinded from treasury, oddly, even though it was attached to the 3rd Cole Memo. You know, Canada, everything is wonderful. We've got a legal adult use market right there, and there capital is coming into the United States. Have you noticed that?

Emily Paxhia: Have we noticed.

Morgan Paxhia: A time or two.

Seth Adler: So if I'm an American investor and I'm simply a patriot, what should I be saying to the Paxhia, what should I be hearing from the Paxhia to say "You know what, I should be a part of this. Let's go. Let's do this."

Morgan Paxhia: I think it's a great point, is that the opportunity for investing in this industry, this is a fantastic period of time. If we hold back and wait the Canadians are not. They have war chests on their balance sheet of cash, not really much more they can build out in their market, so they're eyeing other opportunities. The US is a huge opportunity set for them. They're coming. Either let them come down here and either buy up our companies or compete and be a big problem and actually put up some good competitive barriers, or we have opportunity to invest right along side them or ahead of them. From Poseidon's stand point, we're already here. This is about making sure that we're capitalizing on a fantastic industry in our backyard.

Emily Paxhia: I think one of the things I've been hearing lately is the question "Are we in a bubble? Are we in a bubble?" And that may be the case for some of these public names that are pushing up to what looks like a bubble, but what's important is that it's not a bubble the industry over. It's just in very specific aspects of it that there's a lot of froth and a lot of exuberance, but if you're navigating this whole landscape and spending the time to do it, there is a lot of opportunity to still participate with a lot of upside. I don't want people to think that we've arrived and it's done. That is not the case with this industry. There's still so much to build and so much opportunity space.

Seth Adler: Because Tilray goes up 25%, 30% in one day, that doesn't mean this is a bubble, we just have irrational investors looking at publicly traded companies. That doesn't mean that you can't make money or that we can't make money, or that this is a completely ridiculous an finished thing.

Emily Paxhia: Right.

Morgan Paxhia: Exactly. There's a lot of regulatory impacts that cause these kind of reverberations. From where we're looking, like yous aid, there's fantastic opportunities and institutional capital is only just becoming a part of this industry.

Emily Paxhia: That's right.

Morgan Paxhia: Where you look at every other established industry, there is vast pools of capital to be investing and I wouldn't say our pool is vast by any means yet, there's that crowding effect that certainly does happen with certain companies and at certain periods of time, but for us we've always been focused on the longer term game and managing through periods of time where there could be those company specific kind of events happening.

Emily Paxhia: That's right/

Seth Adler: Company specific events happening is one thing, these larger ebbs and flows of "Oh wow, Jeff Sessions rescinded the Cole Memos." What could possibly happen? What big things are you worried about, if anything? What do you keep in mind? "Well, this could happen and so we have to make sure that we're prepared for that."

Emily Paxhia: What do you think Morgan? I'll let you jump in on this.

Morgan Paxhia: My comment amount ago about capital, I think that's where my concern comes in more so at this point because we are hearing from large, multi billion dollar asset managers, they're getting clearance so that what was previously a block for them, the sin clause, cannabis was unfortunately thrown in the bucket of a sin clause. They're removing that barrier, getting a carve out specifically around cannabis. As those pools start opening up significantly, we're not sure how they're going to be as investors. How patient, or if they're going to be pretty aggressive, and that could distort things. From our vantage point we think this is one of the most opportune times left in this industry to be investing because we don't have that yet, but it's coming. I think we could have a good bit of time left, another 12-18 months, which is perfect for what we're trying to do with capital deployment of our second funds intentionally. If that were to open up sooner, we have to be able to be nimble and navigate around that.

Seth Adler: Podcast land knows no time, but when you say 12-18 months, we're speaking at the end of 2018, just so folks can kind of conceive of what you mean.

Emily Paxhia: Very good point.

Seth Adler: Were you going to make a different point about something else when I brought up that other thing? Because you were pointing at me.

Emily Paxhia: The big friction points?

Seth Adler: Yeah, sure.

Emily Paxhia: I think that just the continued... The big friction points I'm mostly worried about is that we don't, to your point earlier about hiring the right people, if we don't continue to get the right people attracted to participate in this industry, I'm just worried we're going to run into an issue in terms of our management teams in being able to really scale these businesses and effectively manage them from an operational standpoint. That's more of a business fundamentals issue and I'm just always going to continue to worry about that. It's tough for us in this industry because yes, now some companies really do have cash on the balance sheet, but then in some of the earlier stage companies, they have to do what we call more creative compensation structures where it's less cash salary, more incentive through stock options. For us to compete in the Bay Area against tech companies with the starting salaries that they have, it's really difficult. I think that's just one of the things that we try to keep in mind. It becomes more concerning. From a female perspective, something that's concerning to me, just in terms of gender and diversity, is that I'm starting to just see pitch decks coming in with no joke, 15 guys that all look the same on the executive and board team. To me, that's concerning. Not just because I'm a female and because I think it's the right thing to do, but as an investor it shows diversity of thought.

Seth Adler: Diversity of thought.

Emily Paxhia: We need it. Also, it just proves out to be more successful in business.

Seth Adler: Let's just go ahead and take a few steps back to where we all got into the industry and it was really dynamic and it really was diverse, at least from a female/male perspective.

Emily Paxhia: Yes.

Seth Adler: What happened?

Emily Paxhia: I think that pools of wealth in this country are concentrated in a certain demographic of people. I think that that capital has started to flow into the industry and I think that there is implicit bias, whether or not people want to acknowledge it or want it to be there, and whether or not they mean for it to be there.

Seth Adler: I think that's what the implicit part is.

Emily Paxhia: Yes. I'm not sure everybody knows what implicit means.

Seth Adler: Fair enough.

Emily Paxhia: I figured I should help out with that.
I feel like that's like a road bump, people just go right passed it and don't really... anyway.
The point being that I think people hire people like them. I think that you really have to work hard to challenge that line of thinking and that pattern to break out of that. I think that's a great exercise to do just in running a business in it's own right, is to challenge patterns of thought.

Seth Adler: There were also players in this space that were focused on this that haven't necessarily succeeded as much as we thought they might.

Emily Paxhia: That's true.

Seth Adler: There is that.

Emily Paxhia: I know there are some groups that are really working on the diversity especially in board composition. Amy Margolis, my friend who's launched The Initiative, that female focused incubator. We've had some conversations about how do we create a pool of diverse people who have the experience and acumen to get called on to join boards. Let's face it, Silicon Valley has that. They have those board directories you can just call up and get people, so we'd like to set that up for the industry, make sure there's diversity in that.

Seth Adler: I'm sure that the cannabis industry can do better than Silicon Valley as far as diversity.

Emily Paxhia: Absolutely.

Seth Adler: It would be difficult not to.

Emily Paxhia: It's a low bar.

Seth Adler: That's a very low bar, exactly.

Emily Paxhia: You're going to have to set the bar a lot lower than that.

Seth Adler: So we've kind of staked out the landscape here. You guys are in California, you guys have friends and loved ones that really deal with the plant a lot closer than you do. I have been hearing that things are really tough this year. What are you hearing as fellow Californians?

Morgan Paxhia: This comes back to regulations. This is unintended consequences of regulations is exactly what's happening in this industry. When we were originally seeing a legal market forming in California, it was supposed to be this beautifully deep industry with protections around massive consolidation, at least for a period of time so that smaller organizations would have the ability to have a shot. That changed.
Now you had an industry that was on it's heels. Backing up one step too, last fall we had those horrific fires. Those put a lot of stress on a lot of the system already, and then regulations hit.

Seth Adler: It was in the Emerald Triangle that it occurred, or right near it at least.

Morgan Paxhia: Right. That hae a lot of impact on a lot of the growers out there, obviously. Then regulations kicked and it put cash strapped businesses in an even harder spot. Now their expenses went up and now their potential customers were waiting to get their temporary licenses up and going, so they saw massive disruptions to revenues. It forced a lot of businesses to not even get into the legal market. Either they just went away or unfortunately chose an alternative path. It allowed those that had capital to just start coming in and consolidating. Now we're seeing California go from tens of thousands of operators across the state to a fraction of that. It's continuing that process very rapidly. You note about the Canadians coming down here and they certainly are. They're buying up assets because they see it. There's few times in this industry where you can talk about a value play, but we're seeing some of these deals getting done, it certainly was. They were bing picked up for very little. It's starting to rebalance but there's already been a lot of consolidation. Unfortunately we're going to see that happen further. It's just unfortunate.
One of the companies I think we've talked about a lot on this podcast would be Fulcana and what they're doing working with all the small farmers and trying to keep that ecosystem up there, and that's a beautiful thing about the California market. You can do something like that.

Seth Adler: A basket of micro breweries, so to speak.

Emily Paxhia: Right.

Morgan Paxhia: Right.

Emily Paxhia: For me, one of the things that's the most unacceptable about it, well the taxes are really frustrating.

Seth Adler: This excise tax, let's actually dive in. That is one thing I've probably have been talking about it too much, but actually not if the California market can't survive with a 15% excise tax. It's not surviving. We elicit markets coming in and those players that should be playing in the legal market are now having to make a decision on which way to go because folks can't afford cannabis with a 15% excise tax and local taxes and, and, and. What do we do about that?

Emily Paxhia: I think we just have to really continue to be squeaky as an industry up in Sacramento. It's hard, though. It's local, as you're pointing out, and so the different localities are better or worse depending. Oakland's terrible. It is terrible. There is definitely anecdotal support that it's pushing people back into the black market, the elicit market, to buy cannabis. People who never wanted to who were buying through our gray, but regulated to some degree, market. I think it's just an economic thing. I think, honestly, the state's going to see less tax revenue because of that.

Seth Adler: This is the point. One of the points of view is, "Well, we've got to keep the excise tax high because we're not hitting our targets, and let's go ahead and invest in enforcement to push folks back into."
But that's not how business works, right? Don't you have to compete with whatever your competition is?

Morgan Paxhia: Is that how it works? You know what would be really interesting, was if a state would take the opposite approach and come in at very favorable tax rates, and show how much revenue they could generate with low taxes, sensible regulation. Make it easy to be a compliant operator with sufficient oversight. We do need to make sure there's sufficient guard rails, make sure that product is being safely tracked and into legal hands.

Seth Adler: We are all for sensible regulation.

Morgan Paxhia: Yeah. So many of these states have set up with these owners structures and taxes and the industry has embraced it because it's just like, "Well thank you for treating us at least in a legal way, but now we're being treated in an unfairly way with the level of taxes."
It'd be really interesting to see a new state come online and take a different tact and show the market. That's the thing with this industry in general, though, is every state is bringing in new regulations and trying to do it their own way, reinvent the wheel, and not sure if we've figured out which wheel is the best one yet. I think there' opportunity to do something creative that could really help from a regulatory and taxation standpoint.

Seth Adler: Isn't it, at this point, just Colorado? For real? Can't we just agree?

Emily Paxhia: Probably, yeah. Because it's been a mess.

Seth Adler: We've already been through price, what'd you call it, degradation?

Emily Paxhia: Compression.

Seth Adler: Degradation too, right?
Obviously if we've got these issues on the uptake in California, let's just do it the Colorado way. That's what the Coloradans were telling us all along, by the way.

Morgan Paxhia: I'm sure the big operators would say "Yes, but..."

Seth Adler: Of course "Yes, but...", everything "Yes, but...".

Morgan Paxhia: They can't get out, they can't get the liquidity, so they're feeling that burn as they see everybody scaling.

Seth Adler: With just slight tweaks is all we really need.

Morgan Paxhia: Absolutely.

Seth Adler: Slight tweaks.

Emily Paxhia: We could have worked with that and made a modified structure, instead it's got to be, I don't know. It's a real bum out. The other side of it is the lab testing issue because labs are not regulated. The labs are not standardized. If the instrument to establish a baseline is not standardized, how can you have anything that's fair? It's a real problem.

Seth Adler: We've got to get on that, which is going to cost even more money.

Emily Paxhia: Yes.

Seth Adler: Which is going to hurt the operators.

Emily Paxhia: But at least they wouldn't have to throw...

Seth Adler: Well, this has been great you guys, jeez.

Morgan Paxhia: You just went right down. Negative, negative, negative.

Seth Adler: What were you just going to say?

Emily Paxhia: I guess for the operators who have had product fail in one lab, pass in another, and going through all of that, having to destroy product. If the labs were more standardized I think in the end they'd probably do okay, just because by virtue of the fact that at least they know what to expect.

Seth Adler: Indeed.

Emily Paxhia: Yeah.

Seth Adler: The cannabis industry has survived this long, we'll figure it out, and we'll make it to tomorrow. It's helpful to have people like you in the industry, it really is, so thanks.

Emily Paxhia: We try. Thank you.

Seth Adler: I've got three final questions. We've already done the initial questions, we've already done the returning guest questions. What we'll do is the third set, which are brand. I'll tell you what they are and then I'll ask you them in order.

Emily Paxhia: Okay.

Seth Adler: The first question is, how you doing? Second question is, how's everybody else doing, do you think? On the soundtrack of your life, one track, one song that's got to be on there, third question always the same. First, Emily of course, how you doing?

Emily Paxhia: How you doing?

Seth Adler: That wins. That's perfect. Morgan?

Morgan Paxhia: Oh that's it? Wow.

Seth Adler: No, she's allowed to answer that, of course she is. That's perfect. That's a wonderful answer. She gained the system. What would you say, how you doing?

Morgan Paxhia: Amazingly well for just kind of how this has all been. We keep saying we've certainly got our monies worth in 2018, but much happier to be on this side of the pendulum than where we were at the beginning of the year.

Seth Adler: Got it. It does feel like at least the boat is finding calmer waters, maybe? Or maybe not?

Morgan Paxhia: Well they've turned into more favorable seas, maybe following seas, but still very large and powerful.

Seth Adler: Got it. See the sailing references from the beginning to the end. How's everybody else doing do you think?

Emily Paxhia: Everyone's in a sprinting marathon for several consecutive years. I feel like everybody's gasping for breath but it's starting to feel like it's becoming clearer, where we're headed, I think. Just as I say that, something's going to happen.

Seth Adler: That's what I was asking before. Some guy once said "There are known knowns, there are known unknowns and there are unknown unknowns and we just have to figure out which ones are which."

Emily Paxhia: I adapted a well known phrase the other day to this industry which is "The only constant in cannabis is that everything's always changing."

Seth Adler: That's exactly it. The only thing constant is change itself. I think that that was an answer about how's everybody else doing and you kind of entombed that anyway. Oh wait, did you have something else to say? No, no.
On the soundtrack of your life, one track, one song that's got to be on there, each of you, going to need it. Going to need something.

Morgan Paxhia: I'm going to start with singer/songwriter Jimmy Buffet for his recent entrance into the industry with the Coral Reefers brand in Florida. I love that he's getting involved. I think Coral Reefers is a brand that could expand beyond medical.

Seth Adler: Interesting.

Morgan Paxhia: But, love him as a performer so I think it's great to see him coming into the industry. Trying to think of which song I would go with.

Seth Adler: I only know the one song, which is, what is it? Something.

Emily Paxhia: Fins?

Seth Adler: No, no. What's the Jimmy Buffet song?

Morgan Paxhia: Margaritaville?

Seth Adler: Yeah, the Margaritaville song.

Morgan Paxhia: [inaudible 00:31:53]

Emily Paxhia: You should do Fins.

Seth Adler: What's Fins?

Emily Paxhia: It's actually kind of a sexual harassment song now that I think about it.

Morgan Paxhia: I'll do another one instead. Son Of A Sailor since that's what I am.

Emily Paxhia: There you go, that's you.

Seth Adler: That is exactly what you are.

Emily Paxhia: You are the son of a sailor.

Seth Adler: So you're a Parrothead. Are you both Parrotheads? Is that what's happening?

Emily Paxhia: I mean, it happened.

Seth Adler: It was true, and so it's always true. Kind of like the Marines.

Emily Paxhia: Yeah. It was a part of our road trip soundtrack. Our dad always popped in a Jimmy Buffet song. Or sailing.

Seth Adler: What about you?

Emily Paxhia: This year I've been listening to Embryonic Journey by Jefferson Airplane on repeat pretty much.

Seth Adler: Wow, look at you.

Emily Paxhia: It cures what ails me.

Seth Adler: Is White Rabbit on that?

Emily Paxhia: Maybe? I don't know.

Seth Adler: That's one of the greatest songs of all time.

Emily Paxhia: White Rabbit?

Seth Adler: Yeah. Remember what the door mouse said.

Emily Paxhia: Remember!

Seth Adler: Feed your head.

Emily Paxhia: You always know.

Seth Adler: The Paxhia. Thank you so much. We will check in with you down the line.

Emily Paxhia: Thank you.

Morgan Paxhia: Thank you.

Seth Adler: And there you have the Paxhia. Always appreciate spending time with them. Thank you for spending time with me. Stay tuned.

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Cannabis Economy is a real-time history of legal cannabis. We chronicle how personal and industry histories have combined to provide our current reality.