Financing For Cannabis Projects with Rob Sechrist

Josh Wilson
 Welcome to the deal. Scout. On this episode, we have a returning champion who really opened our eyes and our minds about some of the investments of the world of cannabis. We wanted to bring him back on, give us some updates, and he has a big announcement of some recent awards. So, Rob, welcome back to the show. 

 Rob Sechrist
 Thanks a lot, Josh, for having us. It's a pleasure to be here. 

 Josh Wilson
 Yeah. All right, so if someone wants to go back through the story, what we'll do is we'll put the other episode link in the show notes, but kind of give us an overview of who is Rob and what do you do? 

 Rob Sechrist
 Yeah. I'm the co founding president of Florist Equity Group and we run the Florist Fund. We were the first dedicated lender to the cannabis sector in 2016, and today we've done about 71 transactions for over 450,000,000, with about half of those paying off. Were the first private mortgage rate in the sector, the first to get FDIC Warehouse lines of credit, the first to become investment grade rated, the first to bring institutional investors in an unsecured bond, the first for virtually everything except going public. And that was intentional. We didn't want to go public, we don't want to have any share price volatility and we feel that this asset class is going to fare better in an economic downturn or real estate down cycle. Why would you want to put that volatility issue where it could be completely unrelated to the sector that we're in and not be able to continue driving through it? 

 Josh Wilson
 Yeah, awesome. All right, so we're going to unpack public volatility in a few minutes, but that's huge for your industry to go institutional. Tell us, why is that such a great milestone to have an institutional investment based on what you guys do? 

 Rob Sechrist
 Sure. Were not sure it was even possible. There are some rules and regulations of the Controlled Substance Act and some other things that really weren't sure if it was going to be half, it was going to be possible. The first step was to get investment grade rated. We followed the path to buy IPR and IIPR was able to get ABBB plus, and were able to get ABBB plus too. Now remember, IPR at the time was about five or $6 billion market cap and were 250,000,000 at the time. Not only did we get the same investment grade rating as them, we are actually superior to them, but we are hard capped at triple B plus because we're in the cannabis sector. The next step was once that happened, that opens you up to being able to bring on institutional investors and those might be pension funds, insurance companies, banks, publicly traded banks that are not in the cannabis sector, and to participate in that bond. 

 Rob Sechrist
 We did an offering for 50 million at 7% coupon. It's unsecured and it's a really important distinction of being unsecured. Most lenders will go get a secure line of credit. The difference there is that when you have a secure line of credit, there's always a look through to what is secured to establish the lending basis. If you were in 2009 and you had 100 million dollar line of credit, it was secured by a billion dollars worth of real estate and the real estate market completely tanked. Now they're calling your entire line of credit because nobody's making payments on your whole portfolio. That's a massive problem. You do an unsecured bond, you only are guaranteeing you're going to make the payment. There is no look through to adjust the lending basis of that bond. So it goes by the cash flows. We had some of the most superior cash flows that they had seen in the real estate sector. 

 Rob Sechrist
 We theoretically should have been in the AA. Categories are much higher, but there's a hard cap at the triple B plus. 

 Josh Wilson
 It comes to an investor taking a look at secured versus unsecured. What are some of the questions that they have for you guys as they're looking at this process? 

 Rob Sechrist
 Yeah, it's interesting. Those investors have different questions than you would be if you were in our fund. It was interesting we had to switch our hats when were talking to them. Basically they're looking at more cash flows, they're looking at equity to debt ratios, how much secure debt are we carrying and those types of things. What are the covenants that are necessary that are going to be that bond is going to have. Some of the questions they wanted to know about legalization, they do have a lot of the same questions. They want to know about the history and what we've done. We're the only lender in the country that is of our size and scale that's ever had a payoff. Not only have we had a payoff, we've had more than anybody else out there. They really wanted to know about that and see that improve. 

 Rob Sechrist
 The strategy is working and other various mechanical questions like that. 

 Josh Wilson
 Copy that. Before we go too far in this, you guys have a recent award that happened. You guys have gotten some milestones, right? 

 Rob Sechrist
 Yeah, we've been nominated for the best lender as a finalist for the Benzen awards, which is coming up here next month in Chicago or this month in Chicago. We're very grateful to be there with a couple of two other lending peers and we'll see what happens there. We've been the lender to the sector since were the first one that was an actual company that was dedicated and only doing this sector. We were the first to have a dedicated funding vehicle in 2018. We've been here longer and have more data and more experience than anybody from a standpoint of transactional volume. 

 Josh Wilson
 Got it. You guys were the first to pay through a lot of stuff. Where is the industry, the cannabis industry, where has it changed the most? If you look back over the last four or five years or however long you've been doing this, there's a couple. 

 Rob Sechrist
 Of different aspects to that. I think that one is an investor mindset. Most of the time when people come in because of the complexity, they come in on cannabis operator equity in the beginning. They're looking, they want to be a part of the industry, they want that tax return. So they're coming in on the equity. On the downside of that is that I think in a newly emerging industry that has regulatory reform still being developed and being issued in each state as it comes, it's a very risky, speculative when you're on the equity side. Because if you're ever betting on legislative reform, that is a bad bet to be on, in my opinion. The upside is that you theoretically should be in so low that when it does come to fruition, that you get that multiple x on that return. The problem is that legislation is so complicated and it's never going the direction of why you think it's going there. 

 Rob Sechrist
 Cannabis reform and the states act and all the numerous bills, it's not always the reason that you hear about why it's not going through. In reality, we could talk about the politics in later, but we don't see there being any significant reform, certainly not any national legalization. Legalization is actually comprised of two things. Decriminalization is more for the individual and making it so that it's no longer illegal for a person, and the social equity aspect of that to make it retroactive to the people that are still in jail for it. The other side is regulatory reform where you have a national blueprint for all the states to operate under. We just don't see that being possible at this point. Sure, you got the horses out of the barn, and I just don't see that being the case. 

 Josh Wilson
 Got it. If you're betting your investments on the future of a political reform, it could be a challenge. What should or could investors be looking at, especially with the marketplace that we're in now. Right? We're in a very unique time in our economy, as this recording in September of 2022. What are your thoughts? 

 Rob Sechrist
 Normally when you're making equity investments, let's just primarily talk about stocks. You have metrics of decades of data to look at and understand it. This is a brand new emerging industry, and every state is different, and every person is learning in a different place of their cycle, of where they're at, those normal ways that you would go about researching and going through stuff. Even the analysts that are researching us, we're like, these guys have no clue. They're conflating debt as unsecured secured construction loans and all kinds of things together. We're like, nobody understands the space. My first thing I would tell you is I don't think anybody as an individual has enough insight to be a sophisticated investor in this sector. Now you're just kind of betting on what the flow is and what people are telling you. I don't think that's a good spot to be in. 

 Rob Sechrist
 I think that if you want to be in this sector, you want to be with somebody that has a lot of flows. AI AI transcription real time and is staying in that is an expert in it. Now, for example, an equity fund that has been in it for there's many different ones of them out there, but those guys are experts and they understand the sector a lot better than you do. They know the nuances. I want somebody that's had some failures. That's where you learn. It's just part of the process. A guy that everything's gone perfect for them. They have a bigger potential of losing big as opposed to the guy that had something go wrong in the beginning but now he's at least prepared and derisk for that. I would just say that I would stay to investors and funds where you have diversification of somebody that's intimately involved in the industry that has that insight. 

 Rob Sechrist
 That would be my first thing and it would be difficult because most of those funds are not publicly traded. Their entourage effect is one of them and who we work with is one, for example. Or I would go to the other side of it and say, look, I'm not really willing to go into equity and have ups and downs there. The safe side to go to it is go on the debt side and go with one of the many different lenders. You could go private like us, or you could go public with two of our publicly traded mortgage rates. They have a different lending strategy than us, but you still have somebody that's more of an expert and it's seeing the actual underwriting and they should be doing comparative analysis of other transactions they've seen like we do. They know the 2000 deals we've looked at, we know what the market rate and cost should be relative to how many transactions we see. 

 Rob Sechrist
 We've seen it more than anybody probably in the country and have a better idea of where those things should be. That is something that you want to revolve. You're never going to have that look through. As a retail investor, you want to have somebody that's doing that for you and representing you. 

 Josh Wilson
 Yeah. Awesome. Yeah, I appreciate you sharing that with us. When we take a look at private versus public right, like, what are some of the differentiations? You said you guys chose strategically not to go the public route. Why? And then what makes you different? 

 Rob Sechrist
 Yeah. First of all, being public is just a huge burden. You can't do things newly fast. You've got a lot of regulatory they typically want four or five more people just on accounting and it's just this massive burden. It's usually a million dollars a year of just extra cost to stay in compliance with that. We would be willing to have done that could be handled in the size and scale of these companies and ourselves. The more important part that weren't willing to risk is that we think that there is a very strategic competitive advantage to having being private where you have no volatility of your share price. That gives a lot of people some really safeness of mind that regardless of what the stock market is, my value basis of my investment is remaining the same. That on the converse side for a publicly traded peers. 

 Rob Sechrist
 If they were to enter into a period where they are trading below their book value. They're not going to be able to issue any more equity and so that would be a down round and so you will run into a situation and it happens sooner than we thought. That we're into a volatile market situation where that makes it so they may not be able to bring any more equity. Thus depending on how long the market those conditions last, they may not be able to lend for a while or their hands are tied up significantly. So those are some big distinguishing differences. We also have a totally separate lending model than both of them. Even though we're all three called mortgage REITs. They are more of a BDC or corporate debt lending model and utilize a different basis of lending as opposed to us. We just purely use the real estate cost basis. 

 Rob Sechrist
 They us the real estate plus the accounts receivable enterprise value and the value of the license. We believe that those metrics are too difficult to establish a basis on an emerging industry that is not profitable for most companies at this time. We only stick to the asset date. So we issue less proceeds than them. Borrowers are actually looking for most proceeds so they always talk to all three of us and depending on where they're at in their life cycle, some are going to go that way and some are going to come this way. 

 Josh Wilson
 Yeah, it's a new industry, right? With it you said go for the person who has broken through some challenges and had some failures. Not some overnight success, not something that no downside, but go through people who have faced challenges and broke through. What kind of challenges or failures have you seen? Looking at 2000 deals invested in 71, what are some of the things that you've seen? Firsthand? 

 Rob Sechrist
 We've been through the market crash of 2009. We've had to foreclose on hundreds of properties. We've had to reposition all of those proverbs. That's an enormous test of your ability to solve for things. We've also with our cannabis sector of the business, we've also already had to foreclose on a property. If you have not been able to show that you can successfully foreclose and recoup all your money, that's an unknown and you certainly don't want to have to foreclose. But it's not necessarily a bad thing. Losing money is a bad thing. The reason that we foreclose is we have to be able to use that hammer because we have significant equity protection and we don't want to give up that equity. The only way to mitigate any loss is to keep that transaction where we have more equity than we have debt in that transaction. 

 Rob Sechrist
 Some lenders are not even able to foreclose directly themselves and that is a massive disadvantage to reducing your potential loss. In AI transcription. If you had to sell that note prior to it going to foreclosure or if the borrower knew that you couldn't even file foreclosure. That's a really important thing to know. 

 Josh Wilson
 It because they're getting in at second or third positions? 

 Rob Sechrist
 Why? To be uplifted on the Nasdaq, that's something you cannot have any direct involvement in owning real estate at any point whatsoever. That had to be cleared through Nasdaq. 

 Josh Wilson
 Oh, no kidding. Okay, copy that. As you're building this out, like you've looked at 2000 deals and said yes to 71, that's a lot of deals. You're looking at what makes the perfect deal for you where you would say yes. 

 Rob Sechrist
 Yeah. Number one, the canvas operator of which would be the tenant. We need to derisk it first by them having experience. We're looking for a successful operation, or at least the team has come from having successful operations. There's nobody in cannabis industry that hasn't had failure, trust me, from crops failing. It's just part of the process. We want to see somebody that's shown that they can actually make this happen and do it. So number one is experience. Number two is that we need a sponsor. We need somebody that has the personal net worth and balance sheet, him and or his company or the team of the sponsors to have the liquidity, the cash flow and the network to support the size of transactions that we're doing. And that is mission critical. The last part is that even with those first two, we still need the equity protection day one. 

 Rob Sechrist
 On our bridge lending program that we do acquisition and build outs, that particular loan program, we will end ups to 60% of cost and cost basis for us is the acquisition price, any tenant improvements or construction costs and the equipment. If it was 10 million for all those things to be completed, we would lend up to 6 million. You have to come in with 4 million day one. That equity protection is the final piece. That's usually the hardest part to aggregate and put that together. If it's not coming from the sponsors of the transaction, we track where that money comes from and the people that are putting up the money. I've got to be the one that guarantees it. 

 Josh Wilson
 This is awesome. I love this. I'm a cannabis operator, tons of experience, and I'm looking to take down a $10 million property or a project. Right. It's going to be an acquisition and build out. I need to come up with $4 million than a sponsor. I don't have it. What are some of the ways that you've seen other people do that part? 

 Rob Sechrist
 Well, yeah, well, there's different strategies of doing that. Generally you can't get started without having some money or aggregating some money. By the time that people get to us, they've already established some portion of investor base, either their own net worth and or their friends and family. They've usually pitched up with somebody else and built up some equity. Most of the time they're coming with some equity already there, or cash that they have. To come up with the additional equity, the way that most people are going to do it is they're going to utilize the metrics from the transaction that we're closing, and they're going to go show that to their investors. Look, we're closed this $10 million project. It'll take us 18 months to fully stabilize it. Once it's fully stabilized, it's going to be 5 million a month. That 5 million a month is going to support the Nevada market. 

 Rob Sechrist
 We're just taking and duplicating what we did in California over in this other state, and it's just a plug and play. They will show that to their investors. It's much easier to raise the funds then to have to raise 100% out of pure equity. They say, look, we only need the 40% that is required. You could look at the ROI and look at how that affects everything. Once you've run through that, you're always going to start in the first place. Once you've run through that. My suggestion would be to go to some of the better known funds out there, because you get more than just the money when you get it from them. You're getting best practices like we have of knowing what works and what doesn't work. And you're getting some information. There are some other value adds there. The only reason I mentioned Entourage is that we've known them for so long, and they've participated in a lot of equity in a lot of different transactions that we're in. 

 Rob Sechrist
 There's many different funds out there that do that. Another place that I tell people is, look, don't buy the property until you have to. The first step you can do is go to the seller and make them your first investor. But you do it in this way. You just do an option to purchase. Make sure that you have that option to purchase recorded on the deed of trust so that they can't sell it without dealing with you. What you're going to do is you just eliminated having to put out the capital for the acquisition so you can get the facility up and running as much as possible. We can't do that transaction because you don't own it yet. We could go to the owner of the real estate and we could do the loan for him. He could increase the lease rate and build that in. 

 Rob Sechrist
 We could do it back in, wrapping around the back in a different way. We would give the owner of the property the credit for the real estate when he purchased it and some other metrics there. There's just strategic ways to do it. If you don't have to spend the money, don't do it yet. It's the largest spend you will ever have to do. So let's. Push that off as far as possible. Try to work with the people that are involved in the transaction. The other way to do it with the seller is doing a seller financing. Just remember, the financing is enormously hard to find and it's expensive. You could go to the seller and say, look, I'm willing to give you 15% interest only for two years. If the guy takes that's a reasonable rate. You've got it now, you've got a path to go. 

 Rob Sechrist
 Now it's just a matter of improving it somewhere down the line, but you just solve for it. He probably is not going to require you to come in with 40%. He may only require 10%. Anytime you could solve something with debt, even if it's a really high rate, is way better than giving up equity, which is forever. 

 Josh Wilson
 Yeah. Making that balance as a founder is extremely challenging. Right. You have to look at so many different facets and especially if you're challenged for capital today and you're looking at these deals and you're like, man, I got to make this decision. Debt or equity or these kind of things. I love creative finance. I love creative strategies to put deals together. It sounds like you're really good at that. With the 71 deals that you guys have done. Give us an idea on the range of size and what those kind of look like on average. 

 Rob Sechrist
 Sure. Because of the size and scale that were at the beginning and the size and scale we are today, it's disproportionate to I'll just kind of give where it's at today. Today our sweet spot is 20 $30 million per transaction. Our high water mark today is the $77 million transaction we did for the State House roll up of Harborside, Urban, Leaf and one other brand will come to me in a second. The reason people are coming to us is that our ability to be innovative in that transaction is a flagship of that. We had three separate borrower entities, six proverbs in multiple different counties that all had to have a loan closed prior to the roll up. The first 44 million went out in that part to each of them individual as individual borrowers. And then it had to roll up. Real Estate House took them on board, they had to go into another loan and have the proceeds necessary from there. 

 Rob Sechrist
 That's an extremely complicated transaction. Just saying it is one thing to have the process to close. It is where the metal meets the rubber meets road. So that's extremely important. I want to just take a step back for 1 second and also mention that not only can you talk to the sellers for the property and try to negotiate there with us. When we go to 60% loan to cost on a bridge loan. We might be willing to lean in up to another 5% and slightly reduce the equity that you're coming in with the future value of warrants. You're actually selling warrants at the strike price that might be above what your trading price is today. So we do some creative things there. If it warrants, it okay. 

 Josh Wilson
 Out of all the deals you did, take a look at this. Your largest deal to date, $77 million. What did you guys do to celebrate? Because that's a really big milestone. 

 Rob Sechrist
 That's funny. My partners and I have done so many deals in our life, and we kind of laugh at it that it's just one more deal behind us. We didn't do anything to celebrate it. It's just what we do. We did attend the State House celebrating closing party and that was fun and we did attend that. For us, it's just showing up and doing what we do each day. There is not a big even for that. It's just another deal to us. I think that there are other things that we've achieved, getting the investment grade rating and the bond that we celebrate because we know that changes the trajectory of the whole company. 

 Josh Wilson
 How did you celebrate that? 

 Rob Sechrist
 We didn't do anything crazy. We actually spoke and worked on different offices. We have the New York office and people in Miami and Texas and here in California. So we didn't do anything crazy. We're just awesome. 

 Josh Wilson
 Just good job, guys. 

 Rob Sechrist
 Right? 

 Josh Wilson
 As a deal guy, you've done a tremendous amount of deals in your life, right? Like, you've been in the game for a while. You're a deal guy, right? You do a big dial, it's like, okay, on to the next one. As a very experienced deal guy, what do you look forward to? Is there a certain milestone or number? What are you excited about? 

 Rob Sechrist
 We're at about 314,000,000 assets under management today. We want to be the first billion dollar fund. Our fund has been sized for that. We have the capacity to go to that. We think that we're going to end around 400 to 500 million this year. We think that we have a good shot of hitting a billion next year. That's going to be a big accomplishment for us and that will be high fiving on it's just those are some milestones. Getting a fund to a billion dollars is not an easy task. You have to continue to switch strategies to get there. With cannabis, those strategies don't even exist. They've all been brand new to get the first quarter of a million or equity that we had. The next 750,000,000 is going to be different types of investors, different types of sizing and so that we know and we've got the path through, so we've mapped that out. 

 Rob Sechrist
 That's something that really we're looking forward to and we're enjoying what we're doing for the country. We've lived down about 4.2 million sqft. We estimate that of the $50 billion real estate asset class, that this is just the real estate. We believe that we've probably built 10% to 15% of the entire US. Market that is capital is flowing through and producing cannabis products. So we're proud of that. I'm proud that I feel that at some point some people are going to use cannabis as an alternative to other drugs or alcohol. And I think that's a benefit. I pray that some people are using cannabis in lieu or about opioids. That to me is a really important thing, and we don't have any metrics on that. The country has such a massive opiate crisis. Anything that can change the trajectory is really important to us. 

 Josh Wilson
 Yeah, I've interviewed probably 1520 cannabis investors or entrepreneurs, and that's something that seems to be having a large impact. Put in a dent in that crisis, the opioid crisis and what's going on in fence and all and such. Super cool when it comes to the plant, right. The cannabis industry, are there any types of or are there any parts of the plant you guys don't touch, like as projects or locations that you won't touch? Give us an idea of what kind of deals you'll do in the cannabis industry. 

 Rob Sechrist
 We will work with any cannabis related business in a commercial real estate that has commercial real estate. We will not do any AG deals. If it's an outdoor cultivation, that's a nonstarter for us, and we won't do any hemp deals. It's just there's not enough scale there for us. Those are the carbon as far as geographic locations. We built our own database to know every single cannabis licensed operator in the United States and in Canada, even though we don't lend there. But we needed it for comparative. That market has been established longer, and so we need to know and track the market to know what's happening. That's how we know that this is about a $50 billion asset class. We need to be looking for where these licenses are situated, what types of licenses they have, who owns those licenses, have those facilities been built? 

 Rob Sechrist
 Has there been saturation in that particular state of more capacity than what the population, even if every single person smoked cannabis, £2 a day? We needed to know those things. We first entered the space, were pretty sure, because there wasn't anything out there, that there wasn't enough scale to worry about it. As we got more and more into it, we realized we need to know this information and track that stuff. So those were some really important things. One other thing that back to the opioid crisis is that were the first lender to lend to a DEA license federal facility. There's a whole other type of cannabis license class out there, and that is a federal license from the DEA. What makes them unique is they cannot be in a state licensed facility. It has to be a separate facility. They can't have any business together, no owners. 

 Rob Sechrist
 They're doing research for the federal government because the federal government cannot reschedule or make any changes to the existing format, that they have a stance on cannabis unless they can provide a study that is approved that shows there's a medical benefit. So those are happening right now. We're building one of those facilities. There's lots of those facilities licenses that are being issued across the country. What's interesting about those licenses is that they can cross state lines and they can import and export, but it's only two other DEA licensed facilities for research, but it's still an enormous market. 

 Josh Wilson
 Got it. So that seems like a great opportunity. Right. When you guys are looking at these kind of licenses where what do you look for in those kind of deals where you guys see the opportunity there? 

 Rob Sechrist
 Well, as a lender, we're mainly checking the boxes for the opportunity. When we see something that is truly amazing, we want to try to get some equity. We're going to probably offer to increase our loan slightly to get some warrants there if we can. On the really good opportunities, we may not get that the first time, but once they start working with us, there's usually an opportunity again later on in the life of that loan. As they're expanding, as opposed to them going out to their equity investors, they could come to us and set a strike price on warrants that would better than what they would have to sell their equity at today. Those warrants will be based on a future value. 

 Josh Wilson
 Copy that. If you guys come across a really sweet deal, you guys might do of both sides of the coin, right? The debt and the equity? 

 Rob Sechrist
 Yeah, indirectly, yes. Actually our borrowers typically the real estate owner, and the equity is on the tenant. So it's a separate entity. 

 Josh Wilson
 Super cool. Super cool. As you're building this Rob, you guys have hit some amazing milestones on Path to maybe hit a billion dollars next year as a fund. What do you think is the future of your fund in the industry? Where is this heading? 

 Rob Sechrist
 Most people don't realize there's already about 120 leadersre we're tracking in the space. 

 Josh Wilson
 Oh, wow. 

 Rob Sechrist
 Several dozen of those are state, federal, and credit union banks. Not only is banking robust 704, I think banks are listed on Finsett's website as depository banks, both federal and all across the board. But lending is robust across the country. Everybody thinks that there's no banking and there's no lending. We've never, ever seen a transaction that the cannabis related business operator didn't have banking. That would be a massive red flag to us. And so that's a big connect there. On the lending, what I try to tell people is no matter which way federal legislation goes, and we assume that all states will be medically licensed or medically approved within the next five years at most. We assume that more and more lenders are going to continue to enter the space they can. There's nothing that precludes them from doing it. What we try to distinguish is that the value of lending, the building, the projects, nobody can compete with us there. 

 Rob Sechrist
 We are one of the most sophisticated. We've done 5000 of those transactions. We've competed against banks and other lenders that are private lenders as well. And were the best in class. So we're not worried there. A lot of investors assume that if federal legislation changes and opens up banking, they assume that's going to impact the market. And that's a big misunderstanding. The misunderstanding is that you have different class asset types of real estate. You have owner occupied, residential owner occupied, you have mixed use, you have investment properties, you have multifamily, you have commercial properties. There's another type of property called specialty use. Cannabis is a specialty to use property and it's most similar to cold storage, data centers or lab spaces. Those types of facilities require massive investment over and above what a typical property would be to have it built out for their specialty use. 

 Rob Sechrist
 Refrigerators, extra cooling, extra power, whatever it might be. You get into specialty used properties, that's a more specialized lender with cannabis, that is, you have different debt data points. In cannabis, traditional lenders are going to use alternative value because it's federally illegal. Alternative value means what would this property do, what would it sell for or lease for if it was not canvas related? And that's an important thing to know. What place do you utilize a different value for something that you're lending on than actually what it is? It's all actually against the real estate appraisal code. You've got to compare with like comps. It's an important thing to know and analyze for traditional leadersre. They are going to use alternative value. Typically the disparity is going to be about 40% on average. An alternative use is going to be at least 40% lower. They also don't know to tie ups additional collateral on how to make that property secured so that you have all the licenses in the event of a foreclosure. 

 Rob Sechrist
 The banks don't know how to do that. Even if they did, they couldn't do it because of some challenges from their regulations. They're never going to be a specialties lender. Lastly, banks have concentration and geographic limits for borrowers or geographic. In cannabis, just by the nature of the licensing, you're forced into zones of where the best tax bases are or where it's going to be. Even if the bank could do a loan, they can only do one or so there and so they do another one somewhere else and imagine that you are a specialty lender for wineries and you said I've got to have even distribution around the country. In reality NASA is where probably 99% or 90% of the production for the entire country comes out of. Would you set your concentration limits arbitrarily to only do 10% there? As a specialty lender you have to have other things that you look at and that is going to preclude banks from ever being in the sector because they're going to have too high concentration in certain geographic areas which is where they're required to be. 

 Josh Wilson
 Got it. As you are going through this process of building your fund, what is your day to day look like besides looking at 2000 cannabis deals and steady legislation stuff? 

 Rob Sechrist
 Yeah, so we have about 15 people. 13 of those people are on the origination side of the company. 

 Josh Wilson
 Oh wow. 

 Rob Sechrist
 So that's not my side. My side and my team actually it's twelve on that side. My team is three and we're working on the phone administration, strategic relationships, investor outreach campaigns and the conferences and all the things that is necessary for the investor relations. My team manages making sure that the fund has the capital that it needs and the other side makes sure that the capital has a home to go to. 

 Josh Wilson
 Yes. Excellent. During this interview, man, there's so many different topics we can discuss but we're coming up on the end of the interview for today. What question or topic should I be asking you that maybe I didn't think about and I should have asked. 

 Rob Sechrist
 Well, a lot of people ask me what my outlook is on the political, what's happening, if any. I see any legislation reform and my personal stance is I don't think that there's going to be any meaningful change in where things are at. The choke point there is the Senate and you need 60 votes to get through the Senate without to be filled. Busted proof. The disparity in the Senate is that the Democrats are more focused on social equity and the decriminalization of it and the Republicans are more focused on the regulation side of it. The regulation side is more for the businesses and outlook going forward and they're both very important. The things that would fly through in 2 seconds, the repeal of two Ae, the ability to run process credit cards on the federal system, those would go through in two minutes or 2 seconds. 

 Rob Sechrist
 The Democrats aren't willing to let any legislation go through. They can't hang their decriminalization legislation on. So that disparity. I don't see the Democrats ever compromising on that. The Republicans might be willing to do some, but it's never going to be enough to satisfy them. For the Democrats, they're going to continue to utilize this as a fundraising event. The Republicans probably as well. In reality, both parties, this is a non voter issue. Neither party is motivated to blow out any political capital because both of them support candidates. There is never going to be a voter that switches to vote because one party is cannabis and one party is not. Because of that being a party voting non voter issue, nobody's really going to drive. It's relatively a small industry as far as the country is concerned, 25 billion maybe this year or something like that. 

 Rob Sechrist
 Maybe 45 billion in a couple of years. There's individual companies that do more than that. It's not a big enough sector for a new administration that maybe has a 60 vote Senate majority in the House to push through legislation. They're not going to blow ups the political capital in such a small industry. They're going to go for something much more broad that affects the entire country. There was a voter issue. 

 Josh Wilson
 Yeah. Super interesting. I've never looked at it that way. Right. If it's not going to get a new win, they're not going to spend a lot of their social capital trying to push an agenda. That means it's just going to kind of stay the way it is until something major happens. 

 Rob Sechrist
 The way that I could see it happening fairly quickly is if you have a special internet group, big tech, big Pharma, alcohol and tobacco or somebody like Amazon that says you're going to go this direction or we're running somebody against you and we're going to provide $2 million or $5 million for somebody to run against the incumbent. Just say if it's a big enough company or a big enough party, that will move the needle. Because the way politicians think is it doesn't matter what the benefit is, the constituents, no matter what, that has nothing to do with their votes are the primary vote is to always remain in power because in their mind, the politician, I can't do any good unless I stay in power. I always have to make sure I stay in power no matter what it does to my constituents so that I have a chance to be able to affect things for them in the future. 

 Josh Wilson
 Yeah. Until Bezos wants to start slinging cannabis, we're probably not going to have any major reform. 

 Rob Sechrist
 They're big enough that they could say we're going to run somebody against every single person, all 100 senators. If you don't vote for this, we're running somebody against you. That would be meaningful and that investment for them. If they were to be able to do delivery of cannabis, that would be an investment that would make sense. 

 Josh Wilson
 Yeah. Awesome. Rob, let's do this for fellow deal makers in the audience, especially people interested in learning more about the space, maybe investing in that kind of space. Or maybe for some operators looking for some dial, right, and looking for some partners to help them take down some projects. Where could people go to connect with you and do a deal with you? 

 Rob Sechrist
 For borrowers that are looking for loans, that would be email info. I-N-F-O. Rob. Rob Pelorusequitygroup. Rob Pelorusequitygroup. Pelorus. And then the word equitygroupspelled out.com. If it's related to On My Side and My team, you would just email IR for investor relations, rob Pelorusequitygroup. That goes to my whole team. We'll provide you more information, and we're happy to answer questions and explain more of the nuance of it. We can't give investment advice on things, but we're just happy to certainly give kind of our broad take on some of these things. 

 Josh Wilson
 Super cool. I appreciate you coming back on, Rob. It's always a pleasure talking to you fellow deal makers in the audience. As always, reach out to our guests and say thanks for coming on the show, educating us find a way to do a deal with our guests. If you have a deal that you'd like to talk about here on the show, the deal scout, head over to thedealscout.com fill out a quick form, maybe get you on the show next. Till then, we'll talk to you all on the next episode. See you guys.