Ep. 376: Chuck Smith, Dixie Brands

Cannabis Economy Podcast
Ep. 376: Chuck Smith, Dixie Brands

Ep. 376: Chuck Smith, Dixie Brands

Chuck Smith joins us and shares the potential of the States Act and its effect on the industry: “I think for the country to say, ‘Look, these are legitimate business people. They’re creating hundreds of thousands of jobs and creating a billion dollars worth of tax revenue. We need to treat them like any other industry.’ That’s what the States Act is all about. Now, we’re going to do everything we can to support it.”

Transcript:

Seth Adler: Chuck Smith returns. Chuck Smith returns. Welcome to Cannabis Economy. I'm your host Seth Adler. Download episodes on canneconomy.com, and the world economy or wherever you currently get your podcasts. First a piece of a conversation that I had with Nicole Smith of Evolab, and then Chuck Smith.

Nicole Smith: Licensing is just problematic. Generally, you're sharing your IP in a variety of different locations and trying to replicate manufacturing across multiple states. It's just intensely problematic not only for the company that's trying to license, but also for the licensee. It just really became difficult to figure out the right way to do that, protect intellectual property, and all of those sorts of challenges that come along with it. What we decided was easier was to develop an infrastructure where we can produce our formulations without THC and make them available to everyone.

Seth Adler: I can see that this is Chuck Smith.

Chuck Smith: It is. Nice to see you again.

Seth Adler: From Dixie Brands. I know you so long. I remember when it was called Dixie Elixirs.

Chuck Smith: That's right. We've come a long way baby.

Seth Adler: So, what. I mean, let's just go ahead and lay it on them. What are we talking about?

Chuck Smith: Well, we're here at the MJ Business Conference and we have exciting news that yesterday morning got our conditional approval by the CSC for Dixie to start trading as a public company in Canada by the end of November.

Seth Adler: Is this through reverse merger?

Chuck Smith: It is. It's called RTO, or Reverse take over-

Seth Adler: Out there, it is indeed. Yes.

Chuck Smith: ... That's correct. We've been working on this since May. We've done a lot in a short period of time. Although we have great investor support and great market support and so we're really excited.

Seth Adler: Congratulations.

Chuck Smith: Thank you.

Seth Adler: I only know you for the past five years. I know you guys were in business before that, but for you to be doing this now with ... you do touch the cannabis, don't you? You know what I'm saying? In other words, if you and I were to have this conversation in 2013, both of us would think each other were insane.

Chuck Smith: Well, that's right, but you can just see here at MJ Business Conference, five years ago when we were here, there were 400 of us looking at each other wondering what the next move was going to be, and what is there? 25,000 people at the show.

Seth Adler: Chuck Smith returns. Chuck Smith returns. Welcome to Cannabis Economy. I'm your host Seth Adler. Download episodes on canneconomy.com, and the world economy or wherever you currently get your podcasts. First a piece of a conversation that I had with Nicole Smith of Evolab, and then Chuck Smith.

Nicole Smith: Licensing is just problematic. Generally, you're sharing your IP in a variety of different locations and trying to replicate manufacturing across multiple states. It's just intensely problematic not only for the company that's trying to license, but also for the licensee. It just really became difficult to figure out the right way to do that, protect intellectual property, and all of those sorts of challenges that come along with it. What we decided was easier was to develop an infrastructure where we can produce our formulations without THC and make them available to everyone.

Seth Adler: I can see that this is Chuck Smith.

Chuck Smith: It is. Nice to see you again.

Seth Adler: From Dixie Brands. I know you so long. I remember when it was called Dixie Elixirs.

Chuck Smith: That's right. We've come a long way baby.

Seth Adler: So, what. I mean, let's just go ahead and lay it on them. What are we talking about?

Chuck Smith: Well, we're here at the MJ Business Conference and we have exciting news that yesterday morning got our conditional approval by the CSC for Dixie to start trading as a public company in Canada by the end of November.

Seth Adler: Is this through reverse merger?

Chuck Smith: It is. It's called RTO, or Reverse take over-

Seth Adler: Out there, it is indeed. Yes.

Chuck Smith: ... That's correct. We've been working on this since May. We've done a lot in a short period of time. Although we have great investor support and great market support and so we're really excited.

Seth Adler: Congratulations.

Chuck Smith: Thank you.

Seth Adler: I only know you for the past five years. I know you guys were in business before that, but for you to be doing this now with ... you do touch the cannabis, don't you? You know what I'm saying? In other words, if you and I were to have this conversation in 2013, both of us would think each other were insane.

Chuck Smith: Well, that's right, but you can just see here at MJ Business Conference, five years ago when we were here, there were 400 of us looking at each other wondering what the next move was going to be, and what is there? 25,000 people at the show.

Seth Adler: Something like that.

Chuck Smith: You could see marijuana and cannabis industry has grown as an international industry now. United States is certainly moving in direction of ultimately legalization at the federal level. Hopefully, in 2018 through the States Act which we're very involved and supporting as well, but the Canadian market, the Canadian government obviously, legalized federally and that's allowed a lot of access to the capital markets in Canada that we don't have here in the US yet.

Seth Adler: How much has that changed your day-to-day, your conversations and kind of how you do what you do, the fact that the G7 Nation legalized cannabis in every single way you could possibly could have, how much has that changed your day-to-day, your outlook, what you're talking about?

Chuck Smith: Well, as you know, we've been doing this for nine years. Nine years ago as a much different landscape. It's fun now to be able to really be considered a real industry, a real business, to be evaluated kind of similar to any other industry and that's really all we're looking for in the US, is to be treated like any other industry both for regulation, taxation, banking, access to banking. My personal day-to-day, I want to get back to the business of running the business because for the last six months we've been on a roadshow to raise the money and to put the company at a position that is today to soon be [inaudible 00:03:36].

Seth Adler: Cannabis here's [inaudible 00:03:37] dog years, but for only six months for you to just do this kind of remarkable amount of work. So, you're used to doing a lot in a short amount of time as well. Was it Canada that did kind of say, "Okay, let's actually let let the dogs out, so to speak. Let's run the horses," or whatever the phrase is?

Chuck Smith: For sure. First and foremost, we'd have never done it if the team wasn't as strong, [inaudible 00:04:05] as it is, and we were able to also pull together a really strong team, a legal team, both in Canada as well as the US. Our audit partners, both in the US and Canada. So, everybody really pulled together to make this happen. Our investing partners early on back in April and May really were very supportive of us and helped us secure the right public company that we could merge into to make this happen. The CSC has been very easy to work with, too. I'm appreciative of the team, but it all started with the fact that Canada legalized, those markets are open now for investors and for companies like ours to have access to capital that we normally wouldn't have here in the US. Eventually, we want the US markets to be open because we'd certainly love to do the business down here. That's where we're live.

Seth Adler: Exactly.

Chuck Smith: Right now, we're working with our partners up north and we're thrilled about it.

Seth Adler: Speaking of the states, States Act, you've brought it up earlier, it is wonderfully bipartisan. The Senate, it didn't necessarily change. Of course, we had Jeff Sessions, I get to Pete Sessions in a minute, that was a change over, if we're looking at 2019 and 2020, is it really viable? What does need to happen for the State's Act to pass?

Chuck Smith: I don't have a crystal ball and certainly we have a seat at the table, I'm a founding board member the Cannabis Trade Federation, CTF. We've been working for the last well over a year with Senator Gardner on the Republican side and Senator Warren on the Democratic side. Those are two strong leaders. Cory Gardner has really done a lot for Colorado and I think for the country to say, "Look, these are legitimate business people. They're creating hundreds of thousands of jobs. They're creating billion dollars worth of tax revenue. We need to treat them like any other industry."

Chuck Smith: That's what the States Act is all about. Now, we're going to do everything we can to support it. That means, we got to raise a lot of money, we got to shake a lot of hands, we've got to do the right thing though as the industry. This industry has to continue to grow up and be responsible and professional. When you do that, then the politicians aren't going to have anything to argue about because we're not criminals. We're actually business people.

Seth Adler: Yes, although you did say this industry's got to grow up, be professional, and you mentioned one other thing, what needs to be done? If I'm someone that's running a company, or working for a company in the space, what should I be doing from Chuck's perspective, just one guy's opinion, but what should change, what needs to change, what should we be doing more of and less of?

Chuck Smith: We got to be focused on building a platform for growth in a responsible industry. I'm not going to tell anybody how to run their business, but try and do the right thing. It's all about making sure that you're putting product out there that you say, for the consumer. That you're labeling and packaging products that are not only approachable but compliant. That you're paying your taxes, and that you're doing the things that we expect any other business to do in [inaudible 00:07:15] industry. Now there's weird little different to in cannabis because we should be advocates for change. We're ending prohibition and we're bringing medicine to people as well as an alternative form of recreation, but again, that has a high level of responsibility if you just think about what I said. We're bringing medicine to people, but we're not pharmaceutical industry. That means we have to aspire to be a much higher level of professionalism if we're going to earn the right to do that.

Seth Adler: There we go. If we're going to earn the right to do that. You mentioned, pay your taxes, now let's talk about Pete session. No longer in charge of the rules committee, that's all we'll have to say about that, what are the opportunities in terms of changing 2AD. That feels like that's realistic really soon. What is your perspective on that?

Chuck Smith: Well, I think that's just a foundational element of the States Act. If we can get the States Act passed, then that's going to give us not only relief from the 2AD tax code, by the way, that's only for companies that are operating legally. If you're still an illegal operator, or even what they consider the gray market, you're probably going to be subjected to 2AD taxes.

Seth Adler: No, we don't care about them, and-

Chuck Smith: We don't care about them.

Seth Adler: ... Exactly. That's exactly it.

Chuck Smith: I just want to make that differentiation because some people don't necessarily know the difference between the two. So, we'll have 2AD relief, which will be a huge benefit to this industry in terms of reinvestment and actually hopefully making $1 for a change, and then we'll have access to banking because that's also why we have to go to places like Canada, or do some of these difficult private financing deals because we don't have access to lines of credit and traditional banking services.

Seth Adler: Yes. Here's where I'm going with that because you said, let's try to get the States Act passed. If we can't necessarily because the Senate is what the Senate is, and we do have to do these kind of iterative change things like 2AD, we have to go through the House to do that. Then maybe we can kind of get it signed off through amendments in the old way that we used to do it. What are your thoughts on that approach? Does that hurt the States Act if we kind of just do things one at a time?

Chuck Smith: That's an interesting question. Again, we've been doing this for nine years and as Dixie we've been expanding for the last four and a half to five. So, we've been dealing with this state by state dance and if we have to deal with that dance going forward, we'll do that until it's normal. It does just create, I think, barriers to entry, which is unfortunate. It limits the diversity in the industry, which I think that so desperately needs, and it also provides more premium on the product to the consumer than hey really should have to pay. So, the best thing to do would be to fix this across the board.

Seth Adler: Of course. The real way, the big way. Of course.

Chuck Smith: If not, we know how to do it and we'll just keep doing the dance.

Seth Adler: That's it. So, amendment, amendment, amendment, 2AD through amendments and then Mnuchin reauthorizes FinCEN guidance, which was not rescinded. Cole Memo was rescinded FinCEN guidance not rescinded. So, if Mnuchin reauthorizes FinCEN guidance, do you think that opens up banking? No, we need legislation.

Chuck Smith: We need legislation.

Seth Adler: Exactly.

Chuck Smith: I'd love to play this chess game with you. I mean, that's what we do every day-

Seth Adler: Absolutely. This is what you do every day.

Chuck Smith: ... but let's all focus on getting this bill passed.

Seth Adler: Do you have prognostications if States Act will pass sooner than or either sooner or later? Do you have prognostications like some of them that we're seeing for the next two years, three years, five years about how big we're going to get, about how big you're going to get?

Chuck Smith: Here's the thing, I'm not going to project the number. Now because I'm like literally one day away from being a CEO of a public company I got to be careful about numbers that I could talk about. Here's what I will say though, every time we look at a projection, every time the economist give us a projection and size of market, we're always wrong to the downside. It's always bigger. The data is coming back that it gets bigger and bigger. I believe it's because we haven't actually seen who the true consumer of the cannabis industry is. We know who they were, and we know who was comfortable with it, but now we hold the whole level of consumers that are entering this industry that are feeling more comfortable that they can do it.

Chuck Smith: There's not a stigma associated, they're not going to be ridiculed if their neighbors sees them walk into a dispensary. They're looking for a wellness platform that's outside of their pharmaceutical drugs that they have to take to feel better, and they're also looking at an alternative social platform to alcohol. So, we don't know the size of this consumer yet, and the needs and wants and desires, but we're going to learn and we're going to continue to meet them.

Seth Adler: There we go.

Chuck Smith: This is why Dixie is really being positioned as a consumer packaged goods company. My goal for the company is to be considered the number one CPG company in the industry.

Seth Adler: From the moment I met you and Tripp I've said PepsiCo of cannabis. That was what I envisioned for you, right?

Chuck Smith: Yes. We've been called lots of names, most of them are good.

Seth Adler: Other names too.

Chuck Smith: Tripp and I are very are very proud of what we've built and now to see it go to this level, is just [crosstalk 00:12:38]

Seth Adler: I haven't seen him in a while, How's he doing?

Chuck Smith: He's doing great. He's actually calling me right there as you can see.

Seth Adler: There it is. That's his face. Oh my god. I wish you could see face. That beautiful man.

Chuck Smith: But he's here somewhere.

Seth Adler: All right. So, quickly, how are you doing?

Chuck Smith: Doing great. This is a dream frankly. Again, I'm just grateful for our shareholders and our staff and all the people that have helped us, including you, that have been there for us and recognize what we were trying to do, but for the company and for the industry, now we've just got a job to do, because this is in a different level. Now, we have lots of shareholder money that we have to make sure we're taking care of and really building and growing this company in a responsible way. I'm just excited to be part of it.

Seth Adler: That's good. We talked about the industry, how do you think that we're doing? Are we doing good enough? Do we need to do much better now? How do you think everything else is going?

Chuck Smith: In the US, it's still Groundhog's Day. Every single state is fragmented and got their own rules and regulations.

Seth Adler: I keep saying, just do it like Colorado.

Chuck Smith: Yes, you'd wish.

Seth Adler: No, for real.

Chuck Smith: Well, then the regulators in each of those states wouldn't have a job because they just wouldn't be able to have [crosstalk 00:13:50]

Seth Adler: But it's just it's so clear by now, isn't it?

Chuck Smith: It is.

Seth Adler: But just do it the Colorado way.

Chuck Smith: I'll tell you though that's interesting. Colorado's built the regulations to the highest level, however, it has the most restrictive investment policy-

Seth Adler: [inaudible 00:14:05] with any investment, agreed.

Chuck Smith: That's really has stifled the growth in Colorado.

Seth Adler: In the market.

Chuck Smith: The good news is, with our new governor-elect Jared Polis, I believe-

Seth Adler: A familiar name certainly.

Chuck Smith: ... Is a very familiar name, is a very big supporter of the industry.

Seth Adler: Indeed.

Chuck Smith: A very strong business leader as well. I believe that he will help us get investment ownership bill through in the first part of the year, which will allow outside investment to come into Colorado. So, we don't want to do everything like Colorado yet, but we certainly have done it pretty well there.

Seth Adler: We're getting there.

Chuck Smith: To answer your question, though, very quickly. Look, I think this industry is doing great. I think if you looked at the caliber of people they're presenting here, they have booth space here, and just the fact that we're talking about 25,000 people in the Las Vegas Convention Center, you and I could have never predicted that five years ago.

Seth Adler: No. Definitely not from the real.

Chuck Smith: It's overwhelming to see it. I just know our best days are ahead of us.

Seth Adler: On the soundtrack of your life, one track one song that's got to be on there? Always the final question. Do you have a song?

Chuck Smith: I know. I don't have a song right now. Now I'm so embarrassed because I knew you're going to ask me that [crosstalk 00:15:16]

Seth Adler: I know. I feel like here's what we can do. Why don't we go with both of them. We'll go with Money from Pink Floyd, for obvious reasons with the public thing. Then also Time from the same album, from Pink Floyd.

Chuck Smith: I'm going to take that recommendation and I'm going to live with it because you got me beat on that one [inaudible 00:15:36]

Seth Adler: Chuck Smith, Roll Tide.

Chuck Smith: Roll Tide. That's what I should have said. They said the song from University of Alabama and hopefully, 2019 a national champions.

Seth Adler: You guys won't even give it to every year you need.

Chuck Smith: Every year. I know, it was one and three years in a row. Let's do it.

Seth Adler: There you have, Chuck Smith. Very much appreciate his time, very much appreciate your time. Stay tuned.

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