AAWH - Ascend's Attractive Assets

2023-03-22 17:00:00 ET

Summary

• Ascend Wellness is one of the MSOs that analysts have recently been discussing on Seeking Alpha and championing on this podcast.
• CFO and interim co-CEO Dan Neville joins us to discuss looking for new leadership and what investors should be looking at in the space.
• East Coast assets, Q4 earnings and its cash to debt profile.

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Ascend ( AAWH ) has an MSO that analysts have recently been writing about on Seeking Alpha and championing on this podcast . CFO and interim co-CEO Dan Neville joins us to discuss looking for new leadership and what investors should be looking at in the space.

• 3:10 - The search for Ascend's new CEO
• 11:35 - MSO 2.0 strategy
• 16:40 - Ascend's East Coast assets
• 22:00 - U.S. adult-use ballot initiatives and how Missouri is affecting Illinois business
• 26:30 - Will Ascend be acquired?
• 33:20 - Ascend's Q4 earnings and its cash to debt profile

Transcript

Rena Sherbill: Okay, Dan. Welcome to The Cannabis Investing Podcast. It's great to have you on the show. It's great to have you on talking Ascend. Thanks for joining us.

Daniel Neville: Yeah, thank you so much for having me.

RS: Yeah, it's nice to have you on. I was just saying that I was at South by Southwest recently and one of the kinds of themes there was the growth and the maturation, and sometimes the lack of maturation in the cannabis industry. And one of the things that I think goes along with that is leadership changes, which speaks very much to the moment in time that you are at with Ascend in terms of coming on board as Co-CEO, looking for new CEO. But as we talk about that, I'd love to hear your approach to coming on at Ascend and how you're approaching this search for leadership there.

DN: Sure. So I am -- I joined Ascend four years ago at this point. I come from a traditional finance background, so worked in investment banking at Credit Suisse, and then worked for a New York-based hedge fund for a number of years, before moving over to more of an operational role at Ascend. I originally started as VP of Finance, working on capital raising, M&A, and standing up the operational finance side of our business. And then moved over to the CFO seat ahead of our IPO, worked on that, and our U.S. registration statement and IPO in May of 2021. And recently moved into the Interim Co-CEO seat while retaining my responsibilities as CFO.

The company has engaged Russell Reynolds as a search firm, a very well known executive search firm, to run a search for a CEO candidate. We are looking to transition the company from a Founder-led organization. Abner and Frank were Co-Founders of the company, over to a professionally-led CEO organization. So we're looking for somebody who has real operational chops, somebody who is very good at organizational design, structuring and also looking for somebody, I think, with CPG experience.

At the end of the day, this is a consumer packaged good. I think the industry still has a long way to go. Some are better than others. But I think we're in inning one of this journey to what the industry will look like at a later date in time on the CPG side of things, brand architecture, routing. The brand value proposition for a lot of these brands, I think is still very on and being developed. And we realize that over time, this will move to a CPG business, not only because that is how consumers consume the product, but you want to move into that business and have more of a robust offering on that side of things, because that will allow the industry to insulate itself, to a certain extent, from some of the commodity price volatility that you see in the industry today.

RS: Yeah, thanks for that explanation of where we're at. I think it speaks very much to what's happening in the industry, as I said, you know, this search for the CPG component and having that be a part of operational standard at this point in terms of what you're looking for.

I feel like I have to ask, in terms of Jesse Redmond was on a couple months ago talking about us, and we've had a number of analysts, Alan Brochstein , Nick Gastevich come on, and they've all talked about Ascend as one of the cheap stocks in the industry. And something that Jesse mentioned was -- he was quoting Abner Kurtin who is now Executive Chairman, who's the Founder that you've been discussing. And he said, "it's not about looking for a stock that's going to go up 250% or 150%. It's about finding the stock that won't go to zero." And I think when we look across the industry right now, there's been, and to your point about, there's been some hits and misses with the CPG focus.

I think there's been some examples of success with people coming in from CPG and some people not finding success. A part of me also is paying attention to the fact that in many cases where it hasn't been successful, those companies have struggled prior to the CPG, kind of leader coming on. Can you speak to this moment of, I think some kind of -- a little bit of a change in terms of this growth into cannabis as a commodity in terms of looking at the space from that perspective.

How do you go about knowing that they can translate the success that they had in the CPG world into cannabis? Like, it must be something other than recognizing the power of what a commodity can bring to the marketplace? What else is it? Or is there -- or are there other things that you are looking for along with the CPG component?

DN: Yeah, so look, you're absolutely right. That history of people moving over to CPG, over to the cannabis business has been a bit fraught recently. You've seen people come in, you've seen some of those people not work out. And I think there have been some people that have worked out, but the general experience in the industry has been -- there's been some rocky transitions. I think some of those transitions happened earlier in the evolution curve for the industry and the evolution and the growth curve.

So if you were to talk to us two years ago, while we were still scaling up the business, we're still growing incredibly rapidly. We are turning on a lot of different assets, we didn't have as much of a deep organizational structure and deep management bench built out. It would be difficult taking somebody from a traditional CPG job that had worked there all their life and moving them into this seat. But I think we are at a point in our growth curve, in our maturity curve, that this is less of a hyper scaling, turning on assets, running around everywhere, trying to just get stuff done in a very scrappy startup like fashion to a company that's a lot more mature.

And by the way, over the last couple of years, we've added a lot to our bench. We brought on our COO, who came from Cresco ( CRLBF ) and ran their West Coast operations, deep CPG experience, but also a lot of experience in the cannabis industry. We brought on a Chief Brand Officer from alcohol bev, who was at Stillwater Brewing and grew that business for eight years as they expanded from 8 states to 43 states.

So we have a pretty deep bench behind whoever would come in here, not only with experience across a spectrum -- across the spectrum of CPG to cannabis. But we also have -- Frank and I are also not going anywhere too as well. And so we'll step back into our roles, and we obviously want to give the CEO the independence and the freedom to look at everything with a close and critical eye and make the changes that they need to make. But we also have people who have been at this company from very early on, and who understand the business, and how we operate and how we do things that can be a support mechanism, not only on the operational side of things, but also on the cannabis side of things, if the person who comes into the seat doesn't have as much domain expertise within the realm of cannabis.

RS: Can you speak for a second, coming from your background with -- in the financial world? And I imagine or I should ask, if you were looking at the general cannabis space, and looking to get into a specific thing, or you saw Ascend, and you saw a relatively clean balance sheet. Abner has some strong investing experience. Was that what led you there? Or how were you looking at the space when you were coming on?

DN: Yeah, so I had looked at the space on the investment side of things prior to joining up with Ascend. And I think the approach at Ascend was attractive. MSO 2.0, coming in a bit behind the others but being able to learn from the good, the bad and the ugly of mistakes that people had made in the past as they've gone on their cannabis journey, to try to come out with something a little bit different and differentiated.

And so the strategy of entering limited license states with barriers to entry, with attractive supply demand profiles, the strategy of targeting main street retail locations, or one turn-off the highway, standalone retail, 80 parking spots, not just taking the real estate, that was easy to get in an industrial zone on the wrong side of the tracks. But trying to position the retail for the long term with really A plus cannabis locations, and even A regular retail locations, to withstand the tests of competition as additional competition comes in over time.

So that was attractive to me. And I think the overall industry was attractive to me. I've always considered myself to be a lifetime -- lifelong learner. I like to solve problems. This is an industry that, even in 2019, when I joined was in its infancy, right. It'd be like joining Seagram's in 1940 that a lot of the game still has to be played out, the industry is evolving. People are still figuring it out as they go. There is no playbook. You have to come in, and you have to create the playbook, and then try to get better day after day, week after week, and go on that journey.

So I liked the industry, the industry dynamics. It being at that point, a $10 billion industry in a $100 billion market, that over time will gradually transition from the illicit market to the legal market, and the growth dynamics behind that driving that business, combined with the opportunity to not only stand up an organization, but also a business in a new emerging company was really attractive. And then the problem solving side of things, it's just -- it's really interesting, like, if I think the people work in cannabis today, whether they continue to work in cannabis, or they work in some other industry, at some point in the future, will -- are just battle hardened, problem solvers that are able to figure out ways to get stuff done. Because that's the history of the industry.

You wake up one morning, and your equity com platform was acquired by JPMorgan, and you have a month to move everything over to a new equity com platform, which is normally a six month process. And you got to get it done. Regulations change on a dime, you have markets flipping from medical to adult use, often times on very quick timelines. So you're used to waking up and thinking, you're going to have a nice clear day and the skies are sunny. And by 9 am, you'll have a list of five things that you have to tackle immediately, and figure out creative solutions for. There are some days that I'm banging my head against the wall and wishing I was staring back at my screens, because that was a lot simpler and a lot more steady of a day. But it really is just a great learning experience. And I think that permeates through the entire industry really?

RS: Yeah, definitely. It's definitely not challenging, full of challenges and learning opportunities to be sure. Something that you mentioned is the assets that Ascend has, and that's definitely one of the things that people and analysts and investors point to as one of the pluses of Ascend that you guys have a strong footprint. And one of the places where it's, I would say most strongest, just strongest, not most strongest, would be New Jersey. And another place that people point to with a lot of excitement is Maryland.

Do you want to speak about kind of Maryland coming online and maybe how you're thinking about the east coast a little bit?

DN: Yeah, absolutely. So we announced in in January of this year a deal to acquire four dispenser, four operating dispensaries in Maryland from Devi, which is a private company in the space. So they're a private multi-state operator. And it was pretty good timing. The AU initiative had passed in November. The Bill had not been released at that point for the AU Bill within the legislature in Maryland. And so we came in kind of between those two.

Obviously, discussions had been ongoing for a period well before that. But the Bill that came out of Maryland, I think they're looking for a quick rollout of the program. So all -- it's still -- the bill is not done. It still has time to go. But all indications are up to us, are that there was backing to get this done. And they would like to start adult use sales on July 1. So a very quick turnaround to the program.

I think Maryland -- and this is not my opinion, there were actually quotes to this effect from the Governor and the legislature. They saw the extended, protracted timeline between the passage of legalization in New York, and the first adult use dispensaries coming online in New York, which was, I think, almost a two year period, if not a little more. And they've seen the number of illicit shops that have popped up in New York City. I think estimates put that at 1,400 or so illicit shops in New York City. And that was something that the Maryland legislature looked at, in terms of the New York rollout and realized that in order to transition more and more of the market from illicit to the legal side of things, you have to have a quick rollout to the AU program. Otherwise, people are going to go to illicit shops or the underground to source their cannabis in illegal framework.

So we're excited about the market. Medical penetration in Maryland is a pretty tight state. You have states like Oklahoma, where 10% of the population has a medical card, and then there's 10,000 shops. So that's basically an AU market masquerading as a medical market. Then you have markets that are a little more open medical programs like Arizona or Pennsylvania. Penetration in the medical population, as a percent of population in those states is about 4%.

Maryland is a tighter program and on the low end of what we see on the medical side of things at around 2% patient penetration. And part of that we believe is due to the fact that 25% of the people in Maryland work for either the government or a government related contractor. As part of that job, they have to go through extensive background checks. And they don't want to have their name on the Maryland Medical Marijuana registry, pumping on a background check for government related job.

So once that market flips to AU, given that it's a tighter program, we feel like you could get a pretty solid multiplier on medical to AU sales, somewhere in that 2 to 2.5 times current medical sales, which would put this a little over a billion dollar market with only 100 stores operational today. So we think it's a great opportunity. We like the market. Again, we're still waiting regulatory approval on that side of things. But we are working away as we speak on the integration side of things to plan for adult use. And we'll be ready to hit the ground running on July 1 to serve AU customers when sales start.

RS: I wanted to ask about Oklahoma that you mentioned that it's an adult use state masquerading as a medical state. Were you surprised that they didn't pass the adult use there?

DN: Not. I mean, you saw the trend for red states has not been good on these ballot initiatives. Missouri just passed and I think I forgot the states whether it was Mississippi or Arkansas or whatever it was, but there were two other red states that failed on ballot initiatives last November. So I think this is still a continuation in that trend where we saw a lot of progress, a lot of adoption over the last 10 years. And basically, every ballot initiative was passing. And we saw two or three failures this last cycle, which I think is more of a pause, than a trend.

65% of the American populace supports legal cannabis. It's hard to get two-thirds of Americans to agree on anything these days. So this is clearly a winning issue. And we're on the right side of history. But I think this is a little pause. We kind of hit our penetration mark in some of these deeper red states. We're taking a step back and taking a wait and see approach. And look most of the states if you fail one year, that doesn't -- either you can bring it up on the next ballot or the year after. So a no in 2022 doesn't necessarily affect prospects in the next year or the year after that.

RS: And then speaking for a second about Missouri, they had a nice rollout, in many were -- in almost all respects. Are you concerned at all about them taking market share from the Illinois market or the Southern Illinois market? Is that something that you're paying attention to? Or looking at Missouri in any way?

DN: Yeah, so we definitely, we have eight stores in Illinois today. Two of those stores really have exposure to the Illinois market, or sorry, to the Missouri market. Two of those stores are right by St. Louis ones. They're both about 15 minutes outside of St. Louis, on major highways. We had a good amount of customers that were coming over the border. Illinois was recreational, Missouri was medical. We had a decent hunk of business that was coming over the border.

So about 40% of our customers were coming from Missouri, over to the Illinois side of the border. And doing that for the last few years. Now Missouri passed adult use sales. They started sales on February 6. We talked about on our earnings call , the impact of that. And we saw that book of business declined by about 37%. So basically everyone who was coming over the border is no longer coming over the border to our side of the state.

That is -- we quantified that on the earnings call was about a $30 million hit to our revenue. But we also have additional assets coming online throughout our footprint. So we actually had an outlet store. We opened the first outlet store in Pennsylvania in Q4 of last year, and we opened up an outlet store on the southern coast of Mass in a town called New Bedford in February of this year. And that concept has well, well exceeded our expectations. So about two-thirds of the impact related to Missouri, and our Southern Illinois stores getting hit, was offset by the opening of this New Bedford store in February.

So like all portfolios, we have some minuses and some pluses, and it hasn't fully balanced each other out. But there are some offsets on that side of things that have kept us in good stead.

RS: Speaking of the portfolio holdings, if you will, and I don't know if you have anything to say to this or have a response, but Twitter is a flutter, and also Jesse Redmond, who I mentioned was on the show a couple months ago talking about Ascend mentioned this also, about how Ascend is a prime acquisition target for Trulieve ( TCNNF ). Is there anything that you would want to say to the investor community in that regard?

DN: No, look we don't -- we never comment on anything specifically. I'd say what we have built we built what we think is one of the premier assets out there. We have a northeast cotton northeast Midwest concentration. We have great flagship stores in Chicago, Southern Illinois, Boston, Northern New Jersey, with more in the portfolio that are coming online. I think we've done a pretty good job on the capital allocation side of things, too.

I think if you look at the footprint of other MSOs, there's a list of some pretty good markets. But there's a list of some pretty clear whoopsies. While you were in this market, you're subscale, while you were in that market, the competitive dynamics have gotten tougher. We certainly have some of those. We don't get it right all the time. Michigan is probably a great example of that. But you take down the list of states that we -- that people want to be in, we're in all of those states with maybe the exception of Florida.

So I think we built a company that I think is in great markets, with good moats, and have good moats around our retail locations. And I think that should be something that would be attractive for any acquirer, whether it's someone in the cannabis space or a strategic or financial buyer down the line once those groups enter the cannabis space. And the last thing I'd say on that front is we're not empire builders here. So we're going to keep clipping, we're going to keep growing the business. But we, as a company, and as a management team, as fiduciaries have to look at any and all options to increase shareholder value.

The cannabis space has suffered on the equity side of things over recent years. That's not all Ascend specific, right? The industry in general has kind of moved with a very high correlation downwards, unfortunately, for the last couple of years. And so we are, as a management team looking to create value, whatever route we need to take to do that.

RS: Speaking, as the industry matures, and looking how it develops, do you feel like -- well, let me start with the pricing question around cannabis, as it becomes more and more of a commodity, and we're seeing a lot of price volatility, how do you navigate that, as a company growing into an industry that is also growing and what it means for the price of the commodity that you're selling?

DN: Yeah, it's -- look, it's, I think you have to operate this business and plan in this business, just assuming that pricing is going to continue to step down over time. So kind of your base budget every year starting with pricing data. And then you have to figure out ways through efficiency, cost cutting, increasing yields, trying to develop new novel and more premium offerings, to be able to offset those price decreases.

It's easier to manage when it's 10%, relative to the 50% price compression that for example, Massachusetts saw over the last year and a half. It's hard to cut your way all the way to salvation there when you're facing that significant of a price decline. But that, I think is the operating assumption that we use, and I think everyone should use in the industry. If you're doing stabilization or price increases, at least as an operating target, I would take the other side of that every time.

And hopefully, you're surprised to the upside, and prices are stable or a little bit better than you expected. And you plan for down even more and you can capture that upside. But I think you always have to be in this business, trying to figure out how you can get better, more efficient and have a more differentiated offering.

The other thing that we've done too as well is cannabis is a lot more volatile on the wholesale side of the business in terms of pricing than it is on the retail side. So we have purposefully built our portfolio in our state to try to balance and have decent but not over extend our exposure on the wholesale side of the business. So we have big retail footprints in each of the states where we operate scale cultivation facilities.

We're obviously happy to serve the wholesale business and sell our customers to anyone else operating in the state that knows and loves our brands. But we also don't want to be totally lopsided one way or the other, and massively exposed to the wholesale business, which has much more radical swings on the commodity pricing. So once you roll through the retail, and you package it into brands, and you sell it to the end consumer, that business seems to be a lot more stable, and allows us to have a home for our products and our wholesale business, regardless of what happens in the external wholesale market.

RS: Speaking for a second in the financials, and you just announced earnings, as you mentioned this week. There's a lot of highlights to point to even in this beaten down sector that we're in. But revenue has been improving for most quarters, the past few years. You've reduced net losses, pointing to a few highlights. And then something that may be more concerning to investors is, the cash to debt profile and the reduction in available cash. Can you speak to investors in terms of how you're navigating?

And again, Ascend is probably at the best of the worst in this sector, meaning that the sector at large is doing terribly, and I would say, Ascend is doing the least badly in a beaten down sector. But how do you how do you navigate the spaces as they continue -- as you try and continue to grow responsibly?

DN: Yeah. Least bad, I'll put that up on my…

RS: The gold star at this point, yeah.

DN: Look, we are -- I'm a financial guy, Abner's a financial guy. We are incredibly focused on our debt stack or maturity profile and managing this business in a responsible way for all of our stakeholders. Abner's a -- as we've seen, in the past, you have had some companies hit a wall. And like iAnthus, or MedMen, they basically assumed that the proliferate equity markets of 2019 would continue forever, and built their business plans around continuous access to the equity markets and the capital markets. And we've seen a number of cycles ourselves on the investing side of things.

Unfortunately, at this point, we've seen a couple capital market cycles in the short four years in the cannabis industry too, as well. So we are acutely aware of the situation in the capital markets. And I think have been on the leading edge of seeing those shifts in the capital markets and preparing ourselves for those eventualities. So we were one of the first companies in January of last year to actually implement a significant cost cutting reduction initiative and some risks related to our corporate award, because we saw the capital markets getting tougher. And we also saw the trends in pricing that the industry experienced last year.

We raised additional debt in May-June of last year to fund some of our growth and build out and the acquisitions that we did. So we're acutely focused on matching up inflows and outflows and managing our acquisition pipeline and the capital stack and making sure that in environments like this, we are able to go out and take advantage of some of these opportunities that are out there, like Maryland. I think we got a really good price they're at one time sales ahead of -- months ahead of an adult use flip. But if you notice how we structured that transaction, we actually -- there was an equity component to it.

So we paid some cash, but we also paid a portion of equity. And as much as we hate issuing equity down here we thought that's the prudent path. It's an accretive acquisition, and we thought it created value to our shareholders. But we also wanted to recognize that the capital market environment is tough and cash is king. And so we have to balance the greed and fear here and make sure we're managing our cash flow profile appropriately.

I think looking at the business today, we're certainly in a much better position than we were on that side of things a few years ago. We've gone through an extended cycle of build outs, particularly on the growth side of things, which are very capital intensive. So outside of a little work we're doing on the New Jersey cultivation in the first half of the year, we will not be adding additional canopy on that side of things until we see line of sight to adult use in Pennsylvania and Ohio. And we are building out some on the retail side of things. But our CapEx expenditures are growing down very dramatically from '22 to '23.

And at the same time, the operating performance is starting to ramp up on the EBITDA side of things. So we had -- as we turned on assets, turned on New Jersey, a record quarter in Q3 and again in Q4 this year, if you look at our cash flow generation, this past quarter, we made a significant cash -- we made a significant cash tax payment in the quarter for our prior year liabilities. But ex that tax payment, we made $17 million in cash flow from operations last quarter. And well, a lot of that was eaten up by CapEx in the fourth quarter. As I mentioned, you know that cash flow should build as we move throughout the year in 2023. Cash flow from operations and again, you have the virtuous cycle of CapEx burden moving down pretty significantly.

RS: Something we talk a lot about on this podcast is what are the ideal metrics to use as retail investors, what should we be looking at primarily, and that's changed in the course of the few years that we've had the podcast. What would you say, given your background in the financial world what would you say are important metrics for investors to make use of?

DN: Yeah, so it's -- the difficult part in this is that I think the disclosure in this industry is not particularly good. We try to do our best to have robust disclosure in our financials, but also in the presentations that we put out and put -- and put out candid and hopefully useful dialogue, both in our scripts on the earnings calls and Q&A. But the metrics that I would like to track are not always available to track in every company based on the public disclosures.

One thing that I look at really closely and I think is really important, especially in 280E tax regime is the productivity per store. And I am talking our book here because we have the highest productivity per store with some of our flagship retail locations. But that is really important to the after tax cash flow profile of those retail stores, because you are -- at retail, you are taxed on the gross margin line.

So if you have a $30 million store, your SG&A in that store is going to be relatively small. You might have payroll at 6%, 7% of revenue, potentially a little bit better. A little bit more on top for marketing and more on top for just your overall operating supplies. If you have a $3 million store you are -- your SG&A line is probably 25% of your overall revenue.

So if you have a 40% gross margin store with 25% SG&A, you're making 15% operating margins. But 12% of that is going to go to tax because approximately a 30% rate. And that's 12 points of the 15 available of operating profit. So you are cash flow breakeven at best. And I think probably a lot of those stores operating in that $3 million, $4 million level are actually losing money on an after tax basis after 280E basis.

So having you've got a store -- you got a portfolio stores with, you know, $3 million boxes. You can get some leverage from scale and management overhead and try to staff them a little bit leaner. But that is a fundamentally just much more difficult business given 280E taxation, than operating, $10 million, $15 million boxes where you can really work on and make an impact on that SG and a line and cash flow on an after tax basis.

RS: As long as I have you. Yeah, no, go ahead. Go ahead.

DN: And then I just say that look, I think the other thing -- and this is not, this is not a metric for all seasons. But I think you know, Abner's quote, with Jesse is spot on, especially in this environment. The markets are going to decide who are the good companies, who are the good markets, who are the good management teams that they want to bet on, and who are the companies that are not. And the good companies in this bucket are going to get capital flowing to them, even if it's tighter, and the companies in the other bucket, in this environment, couldn't raise a dollar, if they tried.

And so the market is deciding in real time, who the winners and losers are going to be. And so I think, as an analyst or an investor in this space, you need to have a lot tighter lens on the balance sheet side of things, the cash flow statement. These businesses in this environment have to get to self funding. And that's something that we're acutely, acutely focused on. But you really, as an analyst have to look at some of these balance sheets, the maturity profile, or the cash flow profile of these businesses, because today, it doesn't really matter, if you think you have the opportunity to have an amazing business in 2025, 2026 2027, like you have to make it through the next two years. And if you can do that I think there will be great opportunities on the other side of things. But there's going to be a lot of blood on the streets between now and then.

RS: Yeah. And I think even for investors that are maybe a little bit more novice or newer to the industry, or less robust in their financial understandings, I think you can even look at the industry now and look at the people, the companies that are able to close the deals, and are the ones that the deals are being broken in this constrained environment. So I think that's a nice tell.

Something that I was going to ask, you talked about, as being able to survive these couple of years before the industry maybe makes -- there's another catalyst growth of some kind, or the industry matures in another way. Speaking to one way that the industry can mature, which would be pretty major when the prohibition against cannabis gets repealed. How do you see it shaking out? And how beneficial or detrimental will that be to the MSO business model?

DN: Yeah, I mean, the industry is littered with predictions on people opening their mouth on predictions on what's going to happen at the federal level and immediate -- either immediately or months later regretting it. So I think, I won't speculate on action on the federal level. I think one thing for the MSO business models specifically that's probably top of mind for everyone, in terms of how federal legalization rolls out is interstate commerce. Each of the MSOs in the MSO business model is to build up manufacture -- grow manufacturing capabilities in each state that you operate in, which is obviously -- and that's due to the fact that the product cannot cross state lines.

So to supply your own stores or other stores within the state you've got a home grow in that state. No other manufacturing company in any other industry does that, right? Like Starbucks has roasting plant, East roasting plant, West. And they get scale up -- and scale and operating synergies from having these massive, massive factories 2, 3, 4 that cover the entire country.

So I think a big thing to watch out on the cannabis side of things is how interstate commerce evolves. Is it just -- it's legalized, and all of a sudden, you can ship weed from California to points across the U.S.? Or do the states get involved? Right do the state say, Illinois says, look, I've regulated this program for a while. I have particular concerns about, high dose gummies, or, particular fertilizers that I just don't want being used in my program. And each state is like this, is it a federally legal business, but there are still barriers around each state, similar to how things have evolved in alcohol bev with a three tiered distribution system.

So I think that'll be a key thing to watch. I do though -- I think even if the borders come down, just as somebody who's spent a lot of time in grows, and the operations, this is not just like, everybody makes it seem like it's simple, like you take a cut or pop some seeds in the ground. And, you know, some cannabis pops up, 16 weeks later, after nine weeks of flowering. And we don't have those like Monsanto's super seeds that, that are resistant to every disease on Earth, and can grow the same piece of corn, rain, sleet or hail, right.

These are very unstable genetics, it's a very cranky plant. And so I think, you know, that history in this industry of people putting up these million square foot greenhouses, or million square foot production centers, there's been a very mixed history in the industry of that, because basically, you know, whether it's powdery mildew, or spider mites or aphids, once you get it somewhere, if you're not contained in that room, and you don't take very severe biohazard precautions, it spreads like wildfire to the rest of the industry, and the rest of the facility, and you have to do a hard reset.

So I do feel like there is still -- maybe for the sun grown stuff, if the walls came down completely, destroyed, and commodity products like sun grown would obviously go to the least common denominator, indoor flower, indoor premium flower is still indoor premium flower. You still need a certain amount of HVAC, all the other stuff. The real variables, there are how cheap you can get your power, and not being in a -- being in a more arid environment, not something like Florida, where it's very human, and there are very difficult growing conditions to control the environmental.

So I still think there's value on these assets, producing indoor flower until we get to stable genetics, more conventional growing techniques. But obviously, it'd be a lot better for the industry if this was still state by state on the regulation side of things and the product movement side of things than free and open borders.

RS: The last question I have for you is really just ending on a financial note with everything that's going on in the marketplace with Silicon Valley Bank (SIVB) and Signature Bank and all of this implosion of these financial industries. And I just would be curious to hear your thoughts on how you're thinking about that or what you might say to investors looking at the broader marketplace? And feel free to tie it into cannabis if you like.

DN: The broader market. Yeah, it's -- I mean, it's scary out there, right. Bank runs in the age of Twitter are no joke. It's not just people yelling at their neighbor to go down to JPMorgan Trust back in 1907. It spreads at the speed of light these days. So I think that the Fed, has taken some steps to try to stabilize that. Obviously today there's still a little bit more shakiness in the market related to that. So I think overall, it's a bit of uncertain scary times. The Fed has obviously stepped in and stabilized things.

We'll see if that's enough or additional action is needed. But I'm out of that game. So nobody should listen to anything I say. So I think on the cannabis side of things, I think it's hard to fall out of the basement window. So we'll see how the overall broader market in action impacts cannabis equities. But these stocks are so thinly traded, and they're so beaten up. I'm sure if we have a real nightmare scenario on our hands there'll be some volatility related to the broader markets. But I think the sector in the industry has been so beaten up that it doesn't necessarily have to move, one for one with the action in the broader equity markets.

RS: Very good. Well, Dan, I'll leave you with the last word, but I really enjoyed this conversation. Thanks so much for a deep dive with us on Ascend and where you're at and the broader sector and all the things we got into. I really appreciate you taking the time.

DN: Yeah, absolutely. Thanks so much for having me really appreciating -- really appreciate the chance to talk with you and the wider audience and hope to be back on soon.

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