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In the latest episode of the Cannacurio Podcast from Cannabiz Media, my co-host, Amanda Guerrero, and I discuss Cannabiz Media's Cannabis Software Stack Report, mapping contact titles to roles and levels within the Cannabiz Media License Database, Virginia hemp licenses, cultivation licenses during the first six months of 2020, and more. We also speak with Danny Pomirchy, Vice President of Account Development at PMG Development, which provides commercial real estate land development and financial resourcing services to clients in a variety of industries, including cannabis, across the United States.
Press the Play button below to listen to the podcast, and to read Cannabiz Media's previous interview with Danny, check out the PMG Development Client Spotlight.
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Amanda Guerrero: Welcome to the Cannacurio Podcast powered by Cannabiz Media. We are your hosts, Amanda Guerrero and Ed Keating. On today's show we're joined by Danny Pomirchy, Vice President of Account Development at PMG Development. Danny and the PMG Group have been with Cannabiz Media since 2019, and we're excited to have them on the show.
As always, before we jump in with Danny, let's check in with Ed and see what he's uncovered this week from the data vault. Ed.
Ed Keating: Hi, Amanda, we've dug into two things recently. The one I'm most pleased with and relieved is we released our Cannabis Stack Software Report. So as you may remember, from previous pods, we dug into 320 connected companies across the US and how they connected to state seed-to-sale systems. And then, we overlaid that with the number of licenses in those states that they could reach. So in some ways, trying to impute some market share or market opportunity. So it was really fascinating and we've gotten great feedback and questions from our clients. So really pleased on that one.
And then secondly, our data scientists did a lot of work with me to map all the titles that we have in the database for people to certain roles and levels. So if somebody is the VP of cultivation, we’ll now allow you to search for that. So if you want to get VP-level people who focus on cultivation, you now have a way to reach a lot more of those people. So we think it'll help our customers reach the type of license holders that they really want to get to. So we're very excited about both those sides.
Amanda Guerrero: That's awesome. I know when I use a platform, the context view is super important, especially when you're sending out targeted messaging. So I'm so excited that you guys are going to be adding more roles within the organization to the platform.
Now, Ed, regarding the Cannabis Stack Software Report, how do subscribers and non-subscribers access this?
Ed Keating: So subscribers is our Business and our Business Plus customers. They get it as part of their subscription. So they've been contacted so that they can read it and have access to it. For everybody else, we have an executive summary that we've made available for download and that's at cannabiz.media. So you can find it there.
Amanda Guerrero: Wonderful. Well, I'll definitely make sure to share as much as I can on my end, but thank you for the update, Ed. Coming up next we'll be joined by Danny Pomirchy of PMG Development. Stay tuned.
Welcome back everybody. Today, we're joined by Danny, the Vice President of Account Development at PMG Group. Danny, thanks for joining us. Welcome to the show.
Danny Pomirchy: Thank you for having me. I'm looking forward to chatting with you guys today.
Amanda Guerrero: Of course. We know that you're no stranger to Cannabiz Media or the cannabis industry, but let's give our user listeners some background information on yourself. How long have you been within the cannabis space and where did you work before?
Danny Pomirchy: Well, I've been in land development and finance for most of my career. And as a company, PMG, we've been working with cannabis companies since about 2016. We're actually a traditional land development and financial resource construction company, but we got our start with one of the larger cannabis companies in Colorado, really focusing on accounting and construction management. And that relationship basically blossomed.
After a couple of completed projects we became their development managers and focusing on planning and completing their commercial real estate and business expansion projects. Basically, one of the main focuses that we had was ensuring that they were properly planning and monetizing their retail stores, their cultivation facilities, their MIPS, and then alongside, as that relationship progressed, bringing capital to the table for those projects, including some equities and debt and some lease back, including a large lease spec for a large corporate center. So to that effect, we've been really working with cannabis companies for over five years now.
Amanda Guerrero: Wow, that's so exciting. And when looking at your services I have to wonder, did these companies seek you guys out or were you looking to get into the cannabis space?
Danny Pomirchy: It actually started pretty organically, no pun intended. Rick Handley, who was our principal and founder, and Austin Handley, they moved here from Michigan, having done a lot of traditional real estate development and commercial development, and just organically met the owners of the group and the relationship started from there.
And five years later we find ourselves deep in the thick of the cannabis space, having done over a dozen projects with that group, and having some organic referrals, and started marketing a little bit more towards cannabis companies as we've found a bit of a niche.
So our business is actually about 50% cannabis now, where we do a lot of cannabis projects for a lot of clients. And then we do a lot of traditional real estate projects as well. Subdivisions, multifamily, residential developments, things of that nature.
Ed Keating: So Danny, you mentioned that since 2016 you started with a large license holder, and the research has shown that there were a number of large license holders in Colorado. How is the recent shift toward letting outside money come into the state [crosstalk 00:05:50] marketplace. Are you seeing anything different now?
Danny Pomirchy: I think we're seeing a big change and a big shift, where before a lot of... I had a friend who had one of the first, I believe, 20 licenses in Colorado, and it was him gathering about $10,000 between him and a couple of buddies, and taking a small loan out from a friend of theirs and starting a retail store. And you saw a lot of companies and a lot of groups start out just like that, with that small focus. They've had some experience in the past and wanted to get into the legal space.
And now what you're seeing is a much more commoditized market. You're seeing a very large shift to companies that are more financially secure and focused on higher margins, and it's become less about cannabis being a new market and much more about really taking advantage of the financial availability and building large scale jobs.
I think across the United States cannabis has brought in, if I'm not mistaken, somewhere around 211,000 jobs within 2020. So we've seen a big shift from small companies to really large companies, and a lot of money coming in.
Ed Keating: Yeah, that's for sure. And Amanda, as a former recruiter, can probably back you up on that number as well. Now, you mentioned that as you work with these clients, you really try and look across all the holdings that they might have, whether it be MIPS, dispensaries, cultivation, et cetera.
I mean, from a value chain perspective, is there a certain part of the cannabis value chain that's really attractive for where you're focused a lot?
Danny Pomirchy: For us specifically, we're focused on the land development and the financial resourcing as a company. And on the financial resources, we've got a lot of financial groups that are looking to invest money in those groups. And so there are specific things that they do look for in businesses and in companies.
So for us, the focus is on the development. We're bringing the right group to the table for each of those businesses. And one of the things that they do like to see is the vertical integration with groups and companies that are able to control their cost of goods, that control the majority of their own supply chain.
One of the biggest issues that we've seen across certain states are companies coming in and starting, for instance, retail stores. And as they're applying for licenses, they've got relationships and agreements with cultivators.
You know, you saw this a lot in Illinois where they had agreements and relationships with cultivators to take on product, and those cultivators ended up selling their own product and having a very, very small percentage available to those retailers. And so they ended up running out of cannabis and out of actual product to sell to patients.
So being able to control your own supply chain is one of the big areas where a lot of our financial participants, and our financial groups look for companies to understand what their comprehensiveness is going to be, and what their plan to ensure that they're able to bring product to their stores, if it is a retail component.
Ed Keating: Yeah, absolutely. It actually seems to mirror some of the issues that happened, oddly, in hemp, where people grew it, because they're all excited. And then they had no place to sell it on to. So really understanding how that supply chain works and where it can get choked.
You mentioned Illinois and you know, obviously Colorado, do you cover nationwide? Where are your markets served?
Danny Pomirchy: Do we work nationwide. We've had clients in California, Arizona, Colorado. We did about a 25,000 square foot MIP in Oregon that actually recently transitioned into a CBD extraction and isolation facility. We've got a client in Missouri with a very altruistic approach, actually very excited about that project that we're taking on right now. Clients in Michigan. Our principal and founder is actually from Michigan, so we've got a good foothold in that space. So we do work on projects nationwide. I forgot to mention Massachusetts, a few other states. We try to make our way around.
One of the big values that we really bring is, we have a very clear understanding of what historical costs are to build and develop these types of facilities. And so we can bring the right capital to the table because the performance that we're writing out are much more detailed and comprehensive, because we know the actual cost because the cost changes. There's so much variance across the nation. We're able to button down and have a real understanding of what it really costs to build a cannabis facility across the nation.
Ed Keating:Yeah, well, that's, I imagine, really helpful to the people that you're working with, having so much experience, especially across multi jurisdictions. That was actually one of the observations in that software report we wrote, that if you're trying to find a vendor or service provider, having somebody that has worked in more than one state can be a big help because it's not their first rodeo, or they've been to multiples. And that can really, I think, be useful for, especially the client.
Danny Pomirchy: Yeah, that's one of the biggest things that we've seen. A lot of companies that we've worked with, most of them have consultants, or some level of consultancy that they take on. And it's been interesting to see the level of knowledge and professionalism across the board with those consulting groups.
There are so many consultants that have done one cannabis project in the past, or they were a master grower in one specific location in one state. And growing and building and developing and operating in other states is so different and so unique that it all has its own different challenges, different regulations, different rules and requirements that you have to follow, that having that depth of knowledge and experience really does provide a value add to those groups.
Ed Keating: Yeah. Now there's been a lot of interesting financial transactions and tactics in the news, really I'd say, over the last 12 months as the industry seems to have transitioned from, “Hey, let's do a big land grab market share and try and get every dispensary on every corner,” to “Let's run an operationally efficient and profitable organization.”
Some of those that I've seen, and I'd be interested to hear your insights, are a lot of the lease backs that we're seeing, where it seems that companies are trying to free up capital. What is your take on that? Is that an effective strategy for license holders to get more working capital?
Danny Pomirchy: I think the problem is structure of the lease rather than the actual group itself. We've done a number of lease backs for clients, and they've all been structured very, very differently.
An example is, we've done leasebacks with clients where it's a sale lease back effectively, and a client doesn't have a lot of equity. And so taking on debt becomes more difficult for them. So rather than taking on an equity participant in their business, they'll take on a sale lease back where effectively they're selling the real estate and they're selling their business to that group over a short period of time with a repayment schedule, and then they effectively buy back the business and the real estate.
So let's say, as an absolute example, let's say it's a three year term. After those three years, they're paying back the principle and the interest, and then they're buying back the real estate and they're buying back their business.
Danny Pomirchy: If, for any reason, they default in that structure, they lose both assets. So it provides a high level of collateralization for the group that's actually lending the money, which gives them more security, especially given the times that we're in right now financially with the commercial lending space, but at the same time, it also gives the business owner the ability that, if they're actually able to realize their business plan and monetize based on their financial assumptions, they're able to acquire back every asset and component of their business and grow and scale.
That's been a financial model and a financial vehicle that's very advantageous for a lot of groups, because it takes a lot more capital to get into the cannabis space now than it ever has before, especially if you want to be competitive and actually have a true market share in your market.
Ed Keating: Oh, it make sense. One of the other ones we've seen talking about the capital is Acreage Holdings. They recently took out a short term loan that has been calculated to be at a 60% interest rate. So do you think that just speaks to the times we're in? Obviously, there must be some company specific details we're not party to as to why they would go down that route, but have you seen anything like that in the industry?
Danny Pomirchy: Yes, 60% is definitely higher than I've seen in the industry, but where the lending landscape is right now, that might be the only option that they have. I'd be interested to see how they to collateralize on that as well.
COVID has had a lot of varying impacts on the industry within the cannabis space, especially in the lending capacities. We've seen ratios change quite a bit with a lot of lenders where they used to lend dead on 70,30 LTVs, 80,20 LTVs pre COVID. And those have dropped quite significantly to that 50,50, 40,60 range from what we've seen.
Interest rates have gone, obviously, up. We had a client that was paying 39 and a half percent interest. And this is a client that has seven facilities across three states that was cash flow positive and was doing well, and they couldn't take on lending, because the collateralization has changed so much.
Lenders are not only decreasing the LTV amounts that we were talking about, but they're requiring a much higher amount of cash flow, additional guarantees from borrowers that typically you've never had to put it in the past.
And then we've seen companies require our groups require pandemic insurance clauses. So depending on what your financial capacity is at that moment to take on the lending, you might end up having to pay whatever you're being charged by the only group that's coming to the table.
Ed Keating: These are tough times with the lease backs, interest rates. The last question I got asked is what about M&A? We just saw Curaleaf finally getting their deal done. And they've been talking about wanting to acquire more licenses because they think they can do it at a discount, and thanks to COVID they may be right. What's your take on that? And what's the impact on your firm if that does become more the norm in the next six, 12, 18 months?
Danny Pomirchy: We've worked with a couple of groups on different mergers and acquisition strategies based on what their needs are, and it's hard to say that they're wrong because there are enough groups out there that don't have the kind of cash flow that they need to expand. And they can come in and give them a high cash dollar amount for their license and acquire their business or merge, and they're doing it because it's financially advantageous to both groups.
Now, it's obviously more advantageous to the larger group. It's like playing poker and one person has a hundred dollars and the other person has $2,000. They're going to be able to play their hand a little bit looser and control the board a little bit better.
It's been interesting. The landscape that we have seen across the board with groups and licenses specifically in the new states coming across. If you look at licenses that were issued in Missouri, a lot of the larger groups that applied for licenses didn't get their licenses. You had a lot of smaller groups actually receive licenses in Missouri versus the companies that are operating in five, six, seven states.
And it makes it difficult for a company like that to get off the ground, because they're going to have a number of offers from those big groups, like you mentioned, come to the table and provide them with a high dollar amount offer for their license.
The biggest issue that I've seen across the board with M&A activity, license acquisition included, has really been the valuation.
There has not been a lot of consistency, from what we've seen from a valuation perspective, in regards to licensing. Understanding what the true value of the license is, understanding what the true value of the business is itself. You've seen valuation methods go in from tax filings. I've seen valuations based on assets, valuations based on cashflow. There've been so many different ways of doing, and that's why you've seen so many different mergers fall apart at the 11th hour.
So many different mergers fall apart at the closing table, effectively. We've seen a number of large ones come across that were over a hundred million dollars, because when they get to the final table to close, both groups realize that the other company's valuation might be skewed, or they might have been evaluated differently than they evaluated their business.
It's one of the reasons we've spent such a long time cultivating a portfolio of financial groups and participants that we work with, that work with us, with our clients, as a long-term strategic financial partner. So they don't have to make those types of long-term decisions based on somebody else's viewpoint or analysis of their business.
We've brought in real estate investment trusts and PPMs, private funds, accredited investors, and a number of different wealthy individuals that participate in our client's project, just so that they can build their business successfully, have a long-term strategic approach, so when a larger cannabis company that's got 45 different facilities comes and knocks on the door, they don't have to say yes because it's more money than they could have put together. They can actually analyze and make a good decision for their business long-term.
Ed Keating: No, that's a great point. I think back to when I was in business school. I had an entrepreneurial finance professor, and one of the rules he drummed into our head is, if you don't know what your business is worth, somebody else will tell you. And so you really have to know that, and to your point, have the assets to back it up so that you can continue to play and be successful [crosstalk 00:20:32]
Danny Pomirchy: No, you're 100% correct. If you don't have a clear understanding of what the value of your business is, and not just the licensing, but the true long-term value based on multiples over five, 10 years, and have a clear understanding of what, not only your breakeven point on your business is, but also what your exit strategies are going to be in the situation of cost compression, or solvency, or anything along those lines.
If you have a clear understanding of what the long-term value of the business, what the long-term value of the assets and the licenses are, you end up controlling your own fate and your own destiny. A lot of times companies don't have that level of comprehensiveness and that level of understanding for their businesses.
And that's why our businesses, our company, is a little different than most. We write pro formas. And like a lot of companies that write pro formas, typically their pro formas are P&L's. They're based on a specific set of assumptions. Our pro formas are much more comprehensive. They are based on commercial real estate.
First, where we have a clear understanding of the real estate assumptions, the financial assumptions, and we break out every exit strategy up to 15 years with BE points and have a clear understanding of what your IRRs or your NOIs are, your ROIs are, and it's broken down so you have a clear understanding of what the highest cost and value of your business is at every given point.
If you look at a traditional business from a one to 10 year perspective, year one, you're getting operational, year two, you're going to be cashflow positive. Year five is going to be, potentially, one of the best years for you to sell, when you're going to be at your high, and year 10 is the point where you're going to have to make a significant financial contribution on the CapEx side, back into the business, because of the depreciation to your assets, to the equipment, to the facility itself.
And so having a very clear understanding and using that pro forma more as a roadmap to your business, where you're reassessing and repositioning your business quarterly, gives you a significant advantage as a business, but also in the marketplace because you know what the right points are to make financial decisions for your company.
Ed Keating: Yeah, well, I think that strategy and approach is so sound, because to me, it appears that you're really helping your clients just get a better understanding of why it's important to have your financials buttoned up, because as this industry grows, and as it becomes more mainstream, and as financial resources from outside the industry start peeking over the fence, if you can present your business as just, what I like to call, a highly regulated, agricultural vertical, that's a lot different.
And you may have a great deal more success, because the other point that I picked up on is just how different it is from state to state. In Florida, where there were only a few handfuls of licenses, they got flipped pretty quickly at a multiple that who knows how the heck they came up with it, because there were no seeds in the ground even versus in other states where it's been a little looser.
Look at Oklahoma. $2,500 gets you a new license versus Rhode Island where a license will be $500,000. So I think this notion of every state is its own sovereign nation, and that creates a lot of unique challenges. So with you and your colleagues guiding your customers through this regulatory framework is going to help them in the long run, I would imagine.
Danny Pomirchy: You're spot on. I think one of the biggest things that people have to understand is exactly what you said. It's just how different every state is, and what the value of each state is. We've got a number of groups.
We've got a few of our financial groups that we've been talking to about a few of our current projects, and most of them have Wall Street backgrounds, and former executives of JP Morgan, Bear Stearns, Wells Fargo, so on, and they've started private funds. And these private funds are in the $35 to $250 million range. And they're investing in serious, large scale cannabis businesses. And as I'm having conversations with them about different markets that they're going into, the conversation with them is very much on the value of licensing.
A lot of them don't want to go into states, for instance, like Oklahoma. And that's not a knock on Oklahoma in any way, shape, or form. It's just the fact that a license in Oklahoma is worth $2,500, and the competition is going to be very, very large because of the sheer availability of licensing.
And you would go to a state like Florida, where you've got one group selling a license, that license gives you the ability to start more than 20 retail stores on over 20 different facilities with a single license that has a high value.
And a lot of the groups that we're talking to, they're focusing on federalization, they're focusing on getting ahead of the market. So exactly what we've been talking about before. They want to get ahead of the game. And they're looking at it much more strategically with a long-term approach, because that aspect and that viewpoint of the gold rush and cannabis has really transitioned into a much more sophisticated, complicated market for a commodity, effectively.
Amanda Guerrero: Danny, you bring up some good points regarding licensing and going after what matters. In terms of the future, there are a variety of states that are considering cannabis for medical or recreational programs within the next 100 days – New Jersey, Arizona, Mississippi, South Dakota. What does that mean for PMG, and how early do you guys want to get on the ground, or are any of these states of interest to you at this time?
Danny Pomirchy: That's a good question. We work with companies across the board in a lot of states, and we've got strong partnerships with a number of different groups. A group such as Point Seven Group out of Colorado, for instance, which helps a lot of companies with their license acquisition. We partner with them. They've got a brilliant CEO and a very strong operational team, and they help clients attain their licenses, put together the business plans, write their SOPs, put together a very comprehensive business structure to be able to acquire the necessary licenses to grow their business.
And so we get in on the ground floor with these groups in a lot of different states. Those are the types of comprehensive relationships that you're going to need to really attain these licenses, because the groups applying for licenses in those states, they're starting well in advance.
They're starting years in advance planning and putting together business plans that are very, very detailed, and thorough, and comprehensive. Inclusive of every aspect of the business itself. And that's typically where we like to get in. Pre-licensure, we can put together a basic pro forma on the real estate, on the operations, on finance, and get a clear understanding of the ballpark framework of financially what the cost and financial implication is going to be for the entirety of the business.
And then when that license is acquired, we reassess and reposition those pro formas. And then we do the same thing quarterly to make sure that you're always staying ahead of the game.
Ed Keating: As you look into these states, or as they start coming along, we've monitored them for the last five years. And there's often a long lead time between the state saying, "Yes, we're going medical, we're going rec," and then people actually being able to buy product in stores. I liken it to forming a team and organization development. It goes through a forming, norming, performing, storming kind of stage before you actually have an industry that's up and running.
So assuming there is a long timeline, how early do you need to get in on the ground? Is it post vote, is it before the vote, is it when some other trigger happens, or somebody reaches out to you?
Danny Pomirchy: We can get involved, pretty much, at any point. We had a client that applied for a license in Missouri, and we got involved with them two weeks before they submitted their application. Now we had a lot of long all-nighters to put everything together for them, but we typically like to get involved, I would say, post-vote is probably not a bad way of looking at it. There are groups that certainly do get involved earlier and in advance, and it does give them a leg up. It depends on the type of business that you're putting together.
If you're starting a single retail store, it's different than applying for a multitude of vertically integrated licenses. So the level of sophistication, the level of difficulty for your business, for the real estate, for the development, those all play a major factor in a role in making decisions, which is why most companies getting into new states, you really want to bring the right group in that can help you analyze and make the best possible decisions for your business.
Starting out early is only going to give you an advantage, and you're not going to have to rush, because states make changes as we've all seen. And you're going to have to make adjustments to those plans, and to your business, to your SOPs, and to your business objectives based on the changes that they make. Getting involved, getting on the ground floor a little bit earlier than everybody else will give you a leg up on your competition in my opinion.
Amanda Guerrero: Well, that is some great, great advice, Danny, and really, this has been such an informative podcast. Like Ed said, we haven't had someone from the financial background on the show quite yet. And I think you brought up a lot of great points and thank you so much for your time. We really appreciate having you on the show.
Danny Pomirchy: Thanks so much. I appreciated being on. If you guys ever need anything, give me a shout. PMG Development certainly looks forward to working with many cannabis companies in the future.
Amanda Guerrero: We will definitely do that. Thank you so much, Danny. All right, Ed. So taking a look ahead, what data and license updates do we have to look forward to from the data vault?
Ed Keating: Well, there's two things that I'm keeping an eye on right now. The team is still working their way through Virginia hemp data. I think I've referenced it in the past. It's just been hard data to work through. The quality of the information has been tough to tease apart, but they've been working very hard. So I'm hopeful that we'll be able to release that in the next week or so.
And then I'm writing a Cannacurio blog post on nationwide cultivation licenses. Really what's happened through the first half of the year to give an update because cultivation licenses are a really important part of the value chain. It's where it all starts.
Amanda Guerrero: 100%. Let me guess, California, Oklahoma, and Michigan are going to be our leading contenders of those reports.
Ed Keating:You nailed it. That's exactly right.
Amanda Guerrero:Wonderful. Well, definitely looking forward to next week's Cannacurio. Everyone, thank you so much for joining us on today's podcast. We're your hosts, Amanda Guerrero and Ed Keating. Stay tuned for more updates from the data vault.