Strategy Truths & Lies, Mature Industries Already Know ft. Mitchell Osak

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Bryan Fields: What's up, guys? Welcome back to another episode of The Dime. I'm Bryan Fields, and with me as always is Kellan Finney. This week we've got a very special guest, Mitch Osak. Mitch, thanks for taking the time — how are you doing today? Mitchell Osak: Doing great. Thanks for having me on. Kellan Finney: Really well — grateful to get the chance to talk to Mitch today. How are you doing, Bryan? Bryan Fields: Yeah, I'm stoked. We were having fun before we started recording about some of the best practices and the items we've seen other industries pull from, and hoping that today operators can learn from them — just have an open mind about all the possibilities and opportunities out there, because we can all agree it's very hard, what's going on. Vertical integration and operating is very challenging. There are fundamental disconnects across all the systems in place, and putting this all together to make high-level strategic decisions is tough, I think. Mitch does a phenomenal job of understanding all those components, and we're going to have a fun conversation and dive in. But for our listeners, before we get started — Mitch, can you give a quick background on yourself and how you found your way to the cannabis space? Mitchell Osak: Okay, great. So I'm Canadian, born and bred in Toronto. I have an MBA from the University of Toronto. My first job out of business school was in brand management at Procter & Gamble — I was on some small brands like Tide and Cascade, as well as being in their cosmetics business. So I got a really great grounding in CPG and strategy. Fast forward, I started, built, and sold a robotics company. We were value-added resellers, so I learned a bit about channel management and factory automation and so on. Following that sale, I hung out my consulting shingle, where I've spent the last twenty-five years consulting to pharma, CPG, and financial services. In 2016, I went all in on cannabis, because Canada was legalizing adult-use cannabis, and it's not every day you see a massive industry move in from the shadows into the real world. I jumped in with both feet and both arms, and most often I don't look back. It's been an amazing ride — I've met great people and learned some tremendous things. Bryan Fields: Love it. So one would ask — when you got started in the cannabis space, was there a certain specific vehicle or attack point you were looking for, or was it more, "Hey, I can help across this variety of angles" — which one of these was most applicable to the space? Mitchell Osak: So there were basically three pillars in the Canadian industry, and that's where I got my start, right around 2016. One was cultivation, two was strategy, and three was raising capital — and they're all intertwined at a certain point. So I came in and helped clients around the strategy and capital-raising side. Capital raising was essentially working with Bay Street to get early-stage funding into these businesses, because, as you know, they're high-capex businesses. The idea was: let's build these greenhouses, grow the best weed we can, and flood the Canadian market, hopefully the US market, and then internationally. That's half worked out and half hasn't. Bryan Fields: So from a strategy standpoint, how does that approach work? It has to be pretty detailed — you've got to get an understanding of, A, the inner workings of the company, what they do well; B, what they believe they do well at, kind of an assessment of "this is what they do, this is what they don't do"; and then C, maybe an understanding of where they want to go. Are all those pieces of the puzzle how you put it together when you're working with them to develop a strategic plan? Mitchell Osak: Yes, but a strategic plan is a lot like an Irish stew. You've mentioned the potato, the beef, and the carrot, but there's also celery in there — listen, I'm not Irish, maybe Kellan knows, but there are a few other ingredients. One of them is something called best practices: what are your peers, or people outside the cannabis industry, doing that you can learn from? Another one might be — let's see — visioneering: where is this industry potentially going, not only in terms of rescheduling in the United States and so on, but what about biosynthesis? What about artificially making THC, CBG, and CBN in a lab, so you don't need to cultivate anything anymore? So my strategic process is very holistic — it looks at the ecosystem and the company across three hundred sixty degrees. You're essentially looking at everything and figuring out what's the right path forward. And most importantly, that's a combination of choosing what to do and choosing what not to do. That's where a lot of the analysis comes in. Bryan Fields: One of the areas that might seem most difficult is getting a deeper understanding of exactly — well, "Mitch, we kind of do it like this, but right now we're at this stage and we're doing it like this." Do they ever lay out those items — where we're trying to get there, but currently today we do it this way? Mitchell Osak: You know, the problem is our industry essentially has two big groups of actors in it — and I'm generalizing, I know there's more, but I'll lay it out simply. There are your OGs, your farmers, the people who see everything through a cultivation or production lens, and without a doubt those people are fundamentally critical, but they're very much influenced by certain metrics — cost to grow, throughput, yields, and things like that. Then there's the other group of actors: let's call them your money people. They're the ones who put up a lot of the money — I'll also throw the compliance folks into that group. They care a lot about return on assets, return on investment, and so on. They don't see the cannabis industry the same way the cultivators do. So one of the challenges — and one of the things I hope I do — is act as a bridge between these competing interests, competing frameworks of thinking, even competing lexicons. I'll give you one example, and you guys would know this through your work: ask somebody in cannabis what they want to do, and they'll say, "We want to have the highest-quality, best weed." And I'll say, "Okay, that sounds good — it's like saying, I love my sister. What does that really mean? Let's unpack that." When you start unpacking it, what you find is for every three cultivators, they have five different interpretations of quality, and then the money people could have two different definitions of quality. No one can really figure out what it is, and if you can't even agree on the terms, how are you going to position your product in the marketplace such that it satisfies resellers and satisfies consumers? So we have an industry that's still very immature across a lot of these dimensions — and I don't mean immature in a bad way, we just haven't gotten to the consistency and standards we need to say, "Okay, this is what quality means." It means high terpenes, or high THC, or a consistent product. Once we get to that, we can start building a true CPG business, which is essentially what cannabis is. Kellan Finney: Do you think the way we get there is from just having a couple of really large operators that are all on the same page, able to agree on all these complex intricacies, and then end up controlling a majority of market share to standardize the space? Because right now this fragmented, co-op-esque vibe seems to have just created chaos, right — especially in the States. I think it's a lot cleaner right now in Canada, but I could be wrong. What are your thoughts on that? Mitchell Osak: That's an excellent question. I'll rephrase it in the Canadian context, because what you just said is clearly understandable to me. There are two ways the industry is evolving toward this kind of standardization, or equilibrium, around product and cultivation. One is a ground-up approach, where industry players get together and say, "This is how we're going to rate or rank cannabis." In industries like the automotive industry, you kind of know the exotic supercars are Lamborghini, McLaren, and Ferrari — you know Porsche, and you know the entry levels are Hyundai, Kia, and a couple of others. Through advertising and so on, consumer mindsets — and even producer mindsets — coalesce around that. We don't have that in cannabis anywhere, because we haven't had enough time, and we don't have enough education of the consumer. In Canada, they're trying to build those standards from the ground up — that's a tough haul. The other side of it, Kellan, which you correctly identified, is the market imposing what those standards and definitions are — and we've seen that in a whole host of industries, and that's what we're starting to see in Canada to a great extent, as well as the United States. The difference in Canada, though, is I'm not sure it's the biggest players doing it, because in Canada the largest cannabis companies are actually declining as a share of the total market. You have this other cadre of middle-market firms coming up, and those middle-market firms are the ones saying, "Okay, when we're cultivating organic cannabis, this is what it means," and when they talk about quality and have a house-of-brands strategy, it's the right quality, at the right price, in the right format. That's what the car industry is, to a great extent, too. So it is starting to coalesce and happen — it's going too slowly, but I imagine it'll be driven top-down, through M&A and consolidation, more than bottom-up. The problem with bottom-up, as you know, is that if you can't get people to agree on what quality is, how are they going to agree on a standard? Standards will appear, like they do in every other industry, eventually. Bryan Fields: Why do you think the middle companies are siphoning market share from the big boys? Mitchell Osak: Great question, big question. I'll summarize it quickly, and I'm not going to use the clichés you hear a lot — it's not about good weed versus bad weed, it's not about that. To me, it's about strategic focus and being closer to the customer. I don't want to mention any names of large Canadian LPs or MSOs, but— Bryan Fields: Just the three of us. Mitchell Osak: —the problem with the bigger players is that they try to be all things to all people. Even in US cannabis, you've got MSOs that have gotten into the hemp beverage space — they've entered a whole new category, and they don't know their own cannabis category well enough yet, and now they've decided to chase growth in a completely new thing that could be shut down by a new Farm Bill. So it's not a function of quality, because some people want glasshouse quality — the best and highest buzz for the lowest price — and other people want craft cannabis that comes from Humboldt County or BC. What it is to me is strategic focus and sticking to your knitting. So those mid-size Canadian companies and MSOs in the United States are doing a few things really well and focusing on continuous improvement to get there. That continuous improvement is driving down the cost curve, because there is margin compression — we know that. And it's also about getting way closer to what consumers want, in consumer trends like infused pre-rolls and soft gels — things that are at the vanguard of emerging consumer trends, not only around getting high but also wellness. Bryan Fields: I want to hit a few of those points back, because I think it's really important. So from a vertical-integration standpoint, these companies are essentially running six or seven different businesses. So when they expand into the hemp market, what's eight, nine, ten? At this point they're like, "We're just doing a ton of different businesses, just layer it on top — Johnny always handles our new expansion, he can handle one or two more." What's the difference at this point? But I'm with you — it's madness, it's chaos, and it turns out when you do everything subpar, you do nothing well. Right now it's okay, and it might work, but as consolidation happens, as compression happens, what you do better than everyone else becomes the same thing every other industry operates on — what do you do, toe to toe, better than everyone else? It turns out a lot of these companies have no idea what that is. I think that's the scariest part of this whole industry — we've got all these companies doing a few things okay, and a bunch of other areas in their supply chain that are fundamentally a disaster, but they don't even want to acknowledge it right now because it works, and it's just not their core-focus problem. But as the game starts to shift more and more, I think those are the areas you're talking about — these middle-level operators doubling down and saying, "We're going to own cultivation, we're going to own cultivation for craft, we're going to own extraction, we're going to do this better than anyone else, and when the swords come down and we have to fight, we know we can compete in this specific area and beat anyone else." I think that's the difference from a US perspective. Mitchell Osak: Yeah, and I'll add — and I'm not a Procter & Gamble cult member, although sometimes I sound like one — but when we were at P&G, we acknowledged we weren't the lowest-cost manufacturer. We acknowledged we never had the best sales teams. We acknowledged a lot of our failings, and we made conscious strategic choices not to be that. But we said to ourselves: no one is going to be better at mining consumer insights. Number one. Bryan Fields: Ride or die. Mitchell Osak: Number two: no one is going to be better at taking those insights and turning them into market-leading, mass-premium products. So we went for market dominance, or we weren't interested — and it was all based on that insight. And number three: no one was going to market and advertise those products better than us. In none of the areas I just described — manufacturing, selling, being the best corporate citizen, being the best in corporate finance — was P&G necessarily the best. They had billions of dollars to hire talent, they just couldn't focus on all of it. So you just hit the nail on the head — I speak to lots of management teams, and sadly, I beg them to hire me even just for a diagnostic on their business, because I don't think a lot of them actually understand what they're really good at. Every company, and every person, has superpowers if they've been around long enough — they sometimes just don't know what that is. Uncovering that superpower, and then doubling down on it, is the key to success for some of these companies. But they don't even want to do that sometimes, because either they're afraid, or it's hubris, or they're running around like chickens with their heads cut off, and they're in ten lines of business where not only are they not putting up the numbers, but it's sucking capital and resources away from doing the right thing, which is really about strategic thinking. Bryan Fields: That's where it's the scariest, right? Because internally, maybe it's ego, maybe it's fear, maybe it's, "Mitch is going to find some things that are going to make me look not great, and I'm worried how that might make me look to the board." But this is where I think people need to understand — right now the industry is insanely hard. Teams are probably understaffed, underutilized, they lack resources, they definitely don't have all the capital they need. So having someone like yourself, who's seen all these different verticals and best practices, come in and health-check the industry, look at what they're doing, provide a second set of eyes — that can be helpful. And even if you don't end up working with them, just hearing your feedback might get them to say, "You know what, we need to re-look at this, we need to consider doing this," and that information might change their business — just from having the openness and willingness to consider an outside opinion. Mitchell Osak: Yeah, and listen — I'm not going to say I have all the answers. I was around a lot of companies in the early days giving advice that didn't always work out, because, as you guys know, there was no playbook for this industry — to a great extent, there's still no playbook. A lot of the publicly available data is crap, okay? I know it because I've broken it down. I've got children who are statisticians who look at the methodologies and go, "What? How do you make those conclusions off this data?" You guys are data experts, you know this well. So when you have garbage data in, with people with no playbook, and you've got to make multi-million-dollar decisions — that's a recipe for problems. It's hard to go into a company — I want to be very clear — it's like me going into your house and saying, "Your dog is ugly." You're not going to want to hear that. And to your point, you're not going to want to hear it, because you're fully vested in this — you've raised the money and so on. The challenge in these businesses, and this is my pitch right now, is it clearly isn't working for a lot of these companies. It might be time for a new approach, because if everybody's trying to cut their costs and you're not going to have the economies of scale to beat somebody else — if you connect the dots, and I do a lot of industry analysis on rising costs and margin compression — it's not hard to figure out you're going to lose that race. While you still have runway, maybe it's a better approach to say, "How do we take these assets and repurpose them? How do we stay in certain lanes and avoid others?" You've got to be willing to have that conversation and look at the data. A lot of people aren't willing to do that. Bryan Fields: But the data can sometimes be very misleading, and some teams think they've got a clear pipeline of systems for accurate data, and it turns out it's the wrong KPIs — they're not connected throughout the supply chain, or the story gets told differently, too late in the process, where the CFO is looking at — just as an example — the yields, and they're like, "Why are these yields down? Let's go back to manufacturing." And at that point, the process is too delayed for anyone to make any decisions — things have already continued to spiral out. Are there tools, are there systems in place for you to better understand, strategically, where they can figure out — how deep of an audit are you doing, from a health-check standpoint, to understand, under the hood, exactly where there could be opportunities to improve? Mitchell Osak: Okay, so I don't want to pitch my services, but I want to build on what you just said, because people will buy my services, I hope, even more after they hear this. When I got started in this industry, 2016, '17, '18, it was all about cost to grow — how do you go down that cost curve as quickly as possible? So in every pitch deck of people raising money, they'd say, "This greenhouse would allow us to grow at seventy-five cents a gram," and "this greenhouse, sixty-five cents a gram." It was all about driving down unit cost — it wasn't about quality or consistency, it wasn't about risk. It was the wrong metric for a startup company, because you know what happened: they built these cathedrals of glass, half a million square feet, growing in one grow room, and they couldn't even grow anything — no sense of pest control. Who cared about unit cost when you couldn't even grow one thing, and there was no demand for it? The cannabis world, in Canada and the United States, finally got away from that, and then we started talking about terpenes and all this kind of stuff, and I thought we were on our way to actually selling products people wanted, that were going to fly off the shelves and not come back in terms of inventory and buybacks. Now I see — and I'm not going to call out any names — that original sin of unit cost is coming back with some MSOs. What's bizarre to me, and I've had some words with some of the cheerleaders in the industry, is that this is absolutely the wrong time for it, because unit cost as a percentage of your total cost is so low, you save a penny or two by growing a little cheaper — so what? It's really not going to change your bottom line. What will change your bottom line is focusing on consistency and quality, so you can charge ten percent more for that gram of flower. So where they should be going is asking, "What does consistency mean?" They're fighting yesterday's battle. I'm saying: forget about grow costs, get consistency, hit that twenty-five or thirty percent THC level, and you'll boost your earnings twenty, thirty percent through sell-through. So again, back to your point, Bryan — the wrong metrics, measured the wrong way, not understood strategically, within the strategic palette of, if we're a CPG company, there's the price you get and the cost to grow things. Don't only look at the cost to grow — look at the price you can get through advertising, promotion, and a unique product. This industry always seems to be behind the eight ball on stuff like that. Kellan Finney: As a pushback, though, Mitch — I'd say a lot of these companies raised capital, they built that glass cathedral, and in order to increase quality and do all these things you're preaching, that might require more capital. Maybe they do need these sensors, maybe they need to hire more cultivation experience — how do you answer the question when they say, "Hey, we just don't have the capital," so they don't have that lever to pull? Mitchell Osak: Please— Kellan Finney: —and then they're looking at their business and they're like, the only levers we have are to cut costs now. So what's your response to that? Mitchell Osak: That's not a pushback, because we're in violent agreement — I'm all for cutting costs. But how much focus is on cutting the cost, and where is that extra gross profit going? What we see now in every legal market — and this is a lot of the proprietary analysis I've done — you get price declines and margin compression very quickly, often as soon as fourteen or fifteen months. We're going to start to see it in Ohio, for example, very soon. Kellan Finney: Yeah. Mitchell Osak: A lot of companies look at cost control as the way to manage their price declines, and the problem is they don't equate that with the supply-and-demand equation. So they're basically sharpening a pencil sharper and sharper when they really need a pen — and at a certain point, when you sharpen that pencil, it's going to break. Using proper process control — like you guys know a lot about — ERPs, technology, data analytics, is absolutely critical, but to what strategic purpose? For me, it's to get more consistency, more reliability in production, more reliability in the supply chain, simplify your business from a complexity standpoint, take all those savings, and reinvest them in differentiated products — reinvest in innovation, something that's going to impact the top line of your revenue and either stem those price declines or give you the ability to take up pricing, which people have been able to do certainly in Canada with premium and mass-premium products. And what we find in Canada right now is that price levels are actually going up, even though there's still a lot of capacity in the industry. I look at cost reductions and efficiency gains as an enabler to deliver on broader strategic priorities, like being a niche player or differentiating. If somebody wants to be like Glasshouse, where it's all about being the Walmart of weed — that's great, that's a compelling strategy. But in every market, you're not going to have a dozen Glasshouses — you're going to have a couple, and that's it. So unless you're Glasshouse, forget it — you've got to use your savings for other purposes. That's what I'm talking about. Bryan Fields: It seems like, though, the hardest part is that what got you here today is not what's going to get you to the next level. And cannabis makes it even harder, because companies don't pull from these outside-industry best practices. When we talk about process efficiency, these approaches aren't new — they're just tried and true in other industries, and that's the element I'm most optimistic and excited to see applied here, because right now we just make it harder for ourselves. I understand the willingness to change is very difficult — people are fearful of capital, they understand that if we're going to invest in this technology, it has to work, we have to apply it. But these investments are probably what's necessary to go from where you are today to that next level, and that all starts with understanding that what got us here isn't what's going to get us to the next level, because in this industry the strategy keeps evolving because of the regulations and the way the approaches work. We have to be forward-looking, not reactive — exactly like you said. Mitchell Osak: Yes, that's an excellent point. I've spent more time outside of cannabis than in it, and I'm not trying to crap all over my brothers and sisters in the industry — I've got a lot of respect for people who put their own money, their livelihoods, on the line to build these businesses. They came in from the shadows — these are heroes in my mind. But to your point, Bryan, this ain't Kansas anymore. As I mentioned earlier, these new markets in the United States follow a very similar trajectory — it could be off by six months or whatever, but at a certain point it's rapid growth, high demand, rapid supply, boom, and the products start to change and we move away from flower. These dynamics happen in the tech industry, they happen in CPG, they happen with defense contractors, they happen in apparel and retail for sure. So again, what I say to my cannabis brothers and sisters is: get out of this echo chamber where you think this is such a unique industry. Yes, it is unique, without a doubt — very unique regulation, very unique stigma, I absolutely get it — but at the end of the day, there are laws of the business cycle and laws of capitalism, where there's only so many companies that can exist in a space and everybody eats and survives. The best models I find for cannabis, believe it or not — there are three that cannabis should be looking at, in no order of priority. One is the wine industry, where you have the inevitable consolidation, plus a lot of little boutique wineries that are barely hanging on — hobby businesses, essentially — but you have the big players, like Robert Mondavi, and you have production all around the world. It's not only coming from France and Italy, like those snobs always thought it would for two hundred years — you have countries like the United States, California, Canada, and Australia coming and kicking their butts, because they took the technology, they took the growing methods, they took everything and replicated it along roughly the same longitude and latitude as Bordeaux and Côte d'Or. So this is going to become — and it is becoming — an international industry, but it's going to mirror other ones. The other two sectors, very quickly: fashion — new fashion comes and goes by season, we see that with flower, we see that with products; very few people in cannabis look at this as a fashion industry, but if you look at the fundamentals, it's very similar. And the last thing is tech — high capex, coming out with minimum viable products, you start to own the whole consumer relationship. Again, a lot of similarities with tech and cannabis. Cannabis is probably an amalgam of all three of those, but if we start looking through different lenses at this industry, a lot of companies are going to start doing smarter things. Bryan Fields: I think that's what makes it so difficult, right — you've got all these different industries blended together, and then you've got different rules and regs per state, so you have to set up different supply chains in different neighboring areas, which just layers on the complexity. So exactly as you're saying — I think this is the part that makes me really optimistic, recognizing that so far cannabis is as challenging an industry as I've ever seen or worked in, and recognizing that the opportunities in front of them can get easier, but it involves an internal look. So when people do reach out to you, Mitch, is there a common theme — is it more really high-level, or do they come to you and say, "Hey, I think I have a specific problem here, can you help me with why"? Mitchell Osak: Yeah, it's the latter. Most companies are fighting for survival. In Canada, we have — let's say — a dozen, probably more, companies that have turned a corner and are becoming more profitable and scaling up. But generally, when people call me, it's for two reasons: one, they have a serious problem they need help with — that could be a cost problem, I get a lot of those, or it could be, "How do I differentiate in the marketplace," so a top-line revenue problem. Or the other reason is they have an opportunity to capitalize on. I've helped a variety of Canadian companies go international, and it didn't take rocket science to see that Germany was going to legalize, Israel had legalized, Australia had legalized, and Canada was growing a ton of weed — so, two and a half years ago, I said, why don't we take some of that excess inventory and sell it? That was a big idea for a lot of people, and it's not because they're stupid, but cannabis people, right, they're in this box — these folks in BC, to get them to even sell the product outside of British Columbia was almost heresy, because it didn't satisfy community needs and so on. So I'm obviously not the only one who drove international exports, but you can see how that became a driver of further innovation, further cost reduction, because all of a sudden you have bigger volumes. And by the way, that's heralding the development of an international, global cannabis industry that right now — no offense to you two guys, I love Americans — you guys are missing the boat. By the time this industry internationalizes, your big players, let's say Trulieve or Glasshouse, will probably be better off buying one of these large Canadian LPs than trying to grow into it, because at a certain point, you guys know this, international supply chains get established, processes get established, people don't want to re-engineer the wheel. God willing, we'll get to the point where this — let's say it's a twenty, no, it is now — it'll be a hundred-billion-dollar industry in the next two or three years, God willing. Bryan Fields: Well, I think those are regulatory issues, and you're right — seven years ago, when I got started in this industry, I didn't envision United States operators would be locked inside the United States. I envisioned an opportunity where they'd have the ability to expand outside, because I thought there'd be some sensible concepts around understanding that if we want to be part of the global supply chain, we had to get outside the United States. But that's a conversation for another time. I think the element you set up — opening up the thought process of expanding internationally, like, we're stuck here right now, we've got excess supply, the ability to think outside that box — I think that's the fundamental thought process. You're applying different principles, kind of first-principles thinking of, "Currently today this is how things are going, and we've got excess supply — if we wanted to find growth in other areas, we have to figure out strategically where those different levers are going to come from." Sometimes that's really helpful internally, but sometimes that's where an outside person like yourself can make a big difference, because an outside voice you're working with can kind of shine a light and go, "Well, we thought about this before, but it never really made sense — maybe we should re-explore it." But again, I go back to that thought process of openness to consider outside ideas, which is sometimes a very difficult thing to actually do. Mitchell Osak: Yeah, number one. And number two, you sometimes need an outside shit-disturber to go back to the data, look at the data, and look at your assumptions and say, "Are these still valid?" One of the biggest lies told in this industry, in my humble opinion — anybody who comes to you and says, "The TAM of this market is this," you know they're lying to your face, okay, because it'll never happen. Anytime I see a TAM — and I'm not going to call out the worst protagonist in the sector for this — anytime I see a TAM, I cube-root it. And then I ask them the question: when is the TAM going to be achieved? Anybody can throw out a number, but when are we going to get to that number? No one ever says, "I don't know." And that one three-letter acronym, total addressable market, has been responsible for more value destruction, more capital destruction, than anything in the world. One of the things I do is address that question and say, "Okay, how big really is the size of the prize, and if it's this big, how much could we reasonably expect to get?" A lot of this is just math — and you guys understand math really well, it's actually calculus — and if you plot these numbers, you can start to see that the size of the prize is a lot more distant in the future, and a lot smaller, than a lot of people think. We've seen this in every market: they go slower, you get faster price compression, there's less profit, and the problem is capacity is not static — you guys know this. So you invest in a facility, you build up this beautiful cathedral, and guess what — the volume is ten percent of what you thought, and now all of a sudden you're stuck. Wouldn't it have been better to do the math up front? You don't have to do it with me, but I'm pretty good at math — let's do the math for a bunch of different options and see where we're going to land. The truth is, when I've done this, a lot of companies say, "I'm not going to invest — I'm going to come around later and buy these assets at ten cents on the dollar." That is a great strategy, and I can tell you there are companies executing very well at it who are going to soon dominate, because they're not going to have the legacy issues, they're not going to have disgruntled shareholders — they're going to buy it for nothing. Bryan Fields: Well, first off, it's not as much fun when you're doing ten percent of those numbers versus sixty percent, because from a capital standpoint it's way less. Second — just grow tomatoes, right? Isn't that the approach, once you have these cathedrals? Mitchell Osak: Yeah, right — I only know one company that can do that, and they've been very successful: a Canadian company, Village Farms, and they're now profitable. Most companies can't necessarily do that, because growing cherry tomatoes, believe it or not, isn't a no-brainer. So you're right — the very people who say, "I'll just grow tomatoes, what's the big deal," well, there are existing tomato manufacturers in Mexico, Canada, and the United States that are killing it too, and they love it when dumb cannabis people say, "I'll grow tomatoes, cucumbers, and peppers, how hard can that be." Arrogance and hubris is the worst thing for this industry, no matter where you are in the value chain. Bryan Fields: So let's talk distress, though, because I think that's a really interesting point. Given the financial situation of some of these US companies, it could be sooner rather than later that there are opportunities like that. Do you think the Canadian companies are looking down at the US companies thinking, "Hey, this might be a really good time to come in," especially if these positions continue to fold up? Do you think there are specific markets they're looking for, or do you think they're just looking for assets in general? Mitchell Osak: I think that's a very company-specific strategy. Some Canadian companies have no capital for the United States — that's number one, and they're just trying to get their Canadian house in order. I endorse that strategy. Other Canadian companies — and I'm going outside of cannabis here — have blown their brains out thinking the United States is just like Canada, and if we win in Canada, we can win in the United States. We, as a people, outside of hockey and a few other things, don't have a great track record there. Those ones I'd often caution against. The Canadian companies I know that have money, that are ambitious and want to deploy capital, are doing it very judiciously, and are looking for great assets at a very cheap price in healthy markets. So it's not a needle in the haystack — it's more of a hammer in the haystack, and you'll find it, but they get called for money all the time, and the reality is they can afford to be picky, because there isn't a lot of capital being readily deployed in this industry by people who understand the industry. So, like everything else, a lot depends on interest rates, depends on regulations, depends on a whole host of factors, but I think there's going to be a lot more, better Canadian companies than what we've seen coming to the United States — with not only cash, but know-how, genetics, all of these things. Regulations permitting, they can come and buy great companies, buy great brands, buy great assets, and scale up. We're starting to see this in New York State, starting to see this in Florida, we've seen it in a couple of deals in Michigan, obviously. It's going to happen. Kellan Finney: Do you think they're just going to be able to acquire a lot of these assets and flip them into your standard cGMP-quality facility that they built from the ground up in Canada? Or do you think a lot of these facilities might be better off just acquiring the license and maybe the brand, and then figuring out a way to manufacture it under the correct conditions they're executing in Canada? Mitchell Osak: Bryan, Kellan — you tee him up and he's like the closer. You guys ask great questions. So I'm often asked to assess the assets of these companies. Kellan Finney: Check it out, check it out! Bryan Fields: Surprise! Mitchell Osak: And that's a fundamental strategic question, because — to quote Warren Buffett — the price is what you pay, the value is what you get. So they ask me to focus on the value: what do they really buy, what's the asset worth? Everybody generally knows assets aren't worth very much anymore, but what's the management team worth, what's the cultivation facility like — I'm not an expert, I'd have to bring in experts, agronomists, and so on. Kellan Finney: That's what we want. Mitchell Osak: But we can all walk around a greenhouse and go, "thumbs up, not bad, dog" — I can do that. What's the value of their brands? I have methodologies for calculating that too, and that is the biggest question they have, and that takes a lot of time, because I don't do it for free. So when these companies — and they're not only companies, they're funds as well — are looking at US cannabis assets, this particular company has to pass various levels of muster before they deploy me under some sort of due-diligence process. A lot of the time I've said, "Don't do it, because what they're telling you you're getting is actually crap." A lot of that is around brands, a lot of that is around their team — how is their team going to stick around if they're sold to a company? Probably today they would; a year or two years from now, they might be flight risks. So that's a worry. And then what's the likelihood of that license being transferred or sold — in some markets there are limited licenses with restrictions around transferability, things like social-equity licenses. It's not a no-brainer. So even if you have money, and even if you have a willing seller, there's still a big chasm to cross. I'm one of the people who builds those bridges, but there's still a lot of heavy lifting that has to be done from the buyer's perspective. Bryan Fields: How long does that take, just as an estimate? And are you putting together a report — is that what someone can see? Because those are a lot of details, right — you can't sit down with somebody for forty-five minutes and say, "Here are the six most important things." There's a lot of fundamental detail, because essentially you're recommending to them: here's what I think, this is what I found. Mitchell Osak: Yeah, and I don't want to be sued — I get a lot of these calls, and I'm sure you guys do too: "Tell me about XYZ company, what do you think of their products, what do you think of their brands?" And I say, "Well, what do you mean by brand — are we even talking about the same thing?" And they say, "Well, do you like the name of the product?" And I go, "The name — who gives a damn about the name? What's consumer repurchase like?" Bryan Fields: You can change it. Mitchell Osak: Do they have a price premium versus their competition? That's what I define as a brand. Most people just want a snapshot view, because — when I'm hired, it depends how much time I have. Usually it's a due-diligence process, so it could be post a term sheet or a letter of intent to purchase, or before that. In that case, it's thirty to sixty days to do this work, and it's all hands on deck, and I'm probably producing, like you said, thirty, thirty-five pages, and it's all hypothesis-driven. So they might say, "I don't care about the greenhouse, just tell me the value of these brands," or, "tell me about their capabilities — is their extraction as good as they say it is?" No comment. In other cases, before that term sheet, they might say, "Okay, I need to buy something in Florida — there's a lot for sale, Trulieve controls seventy percent of the market, I could probably carve out something from the other guys — who should I go after? Rank them all according to these criteria" — and that might be a shorter list, because I give that to the CEO, or the CFO, or the corp-dev person, and they start dialing for dollars based on the list. What I'm giving them meets up with, or aligns with, the corporate strategy of the acquirer. So if the acquirer is Glasshouse Brands, for example, and they want the best facility because they want the lowest cost, then I'm not going to be looking at everybody — I'm only going to be looking for the largest and the best, with the best unit economics. So it really depends — it's a big question, but I'm often sent off in a specific direction with a mandate, as opposed to a blank sheet of paper and doing a whole assessment on everybody. Bryan Fields: What about modeling out future unknowns — for example, interstate commerce, rescheduling, global trade, federal regulations, all the things we always dream about? Because if someone's making a decision like this from an investment standpoint, they're hoping five, ten years from now we'll eventually get some of these things — maybe at this point, hopefully. Mitchell Osak: Okay, great question — again, now you're the setup man. A big part of the strategic planning I do is scenario planning. It's almost like I invented that phrase for this industry — I don't know, oil and gas has been doing it for a hundred fifty years, automotive too — what's the future holding, and how do we mitigate the risks around that and position ourselves for some of the things that are going to happen? Consumer transitions, like that — that's a big part of what I do, and sadly, not a lot of these companies do it. To the extent they have a planning horizon, a lot of them are just focused on rescheduling right now — they're not thinking about what happens if SAFER comes, they're not thinking about what happens if it doesn't come, they're not thinking about legalization, they're not thinking about a whole host of stuff, and you have to play out these scenarios to figure out how to go to market. In the case of hemp beverages, as an example, I'm doing scenario planning with the hemp beverage guys, because they can gain a market and lose a market in twenty-four hours — they have to do it. But a lot of the time it's trying to convince them to do it, because they're tunnel-visioned — it's all about getting into as many gas stations as they possibly can, they don't even think about cannabis beverages. So it's about taking somebody's telescope and broadening it out, so they have a much wider horizon — literally standing on a building so you can see to the horizon. It's not about figuring out exactly what to do, it's about asking the questions: how are we going to prepare for different scenarios and different eventualities? I always say, don't hire me for strategic planning — hire me for strategic thinking. The thinking is what's important; the plan could take a variety of different forms. Bryan Fields: Yeah, and one of the things we just talked about — if you have a small cultivation facility and interstate commerce happens, there's no reason to cultivate, right? Just buy it from Glasshouse — your cost of goods goes right down, you have a reliable source, and Glasshouse wants that anyway. This is where we talk about the iteration of changes and how things are strategically going to evolve — it all starts with understanding that today, the way the game operates, is not how things will operate in the future, and that involves strategic thinking and decision-making, which, when you're talking about an acquisition, has to be considered, because— Mitchell Osak: Correct. Bryan Fields: —the price you're paying for the asset is likely modeled on what it's currently doing today, not on how all these other variables can come forward and really disrupt it to the point of making it almost moot. Mitchell Osak: And that's happening in Canada right now — you'd be surprised how many big consumer brands are basically purchased through wholesalers and so on. That's one of those secrets not a lot of people talk about, but it's an inevitable evolution of the industry — it's CPG, it's farming, it's all of that. So sometimes change happens with a whimper, not a bang, and that's the whimper that's going to encompass every market and every geography, whether we like it or not. You just have to be prepared for it. Bryan Fields: What about AI? Does anyone call you and ask you about AI? Mitchell Osak: Yeah, I do a lot — I shouldn't say a lot, I have a lot of AI conversations now. The problem is everyone says, "Yeah, yeah, yeah, we need AI," and I say, "What for?" And they go, "I don't know." What are the use cases? There are good use cases for AI, without a doubt, but how does it fit strategically into your business? Let's talk about operational excellence — AI is great, but where's the data going to come from? Bryan Fields: Get sensors. Mitchell Osak: Okay, what if you don't have sensors? Right — so AI becomes an operational-improvement strategy using AI. Kellan Finney: I thought you were going to say— Bryan Fields: Right, but it starts with putting it on the board and saying, "Okay, what do we want to achieve — we want AI for X, right?" And then you work backwards through the process: "Okay, we want to understand our true operating costs — how do we get there? Well, we have to figure out these data inputs. How do we get them currently? Well, we don't write them down — let's start writing them down. What about these other ones? We need a sensor — okay, let's get a sensor. Once we have all these, how does that alter our workflow?" Once you do all those pieces of the puzzle, you can have a strategic thought. I think one of the issues I've seen with AI is people want it, but they're also petrified of it — they're like, "I don't really know, we've got to get sign-off." Well, don't dump your proprietary financial information into it — use it as a thought process, a sparring partner, to think through, "How do we think about these things, what can we consider, what variables am I not considering in cultivation that I need to think about, in order to figure out which metrics are really important to track?" That's where AI can make a massive difference, and people don't need custom AI for that — you can use ChatGPT. Mitchell Osak: Yes — I publish a weekly newsletter called the Cannabis Management Review, and I'm writing an article on AI copycat strategies in cannabis. What is it? I have clients who will enter prompts and get an instant strategy, and they think, "Okay, I just got a cannabis strategy." And I say, well, you know the saying — garbage in, garbage out. Do you know where AI information comes from? Spoiler alert: sixty to seventy percent of it comes from Reddit and Wikipedia. If Reddit and Wikipedia aren't correct, then you're feeding bad gas into your Lamborghini, and you're going to destroy the engine. AI will be good, in my opinion, when you have a closed system and you can actually bring in your own real data, real operating data from other people. So if somebody has the sensors you talked about, Kellan, collecting data from a variety of places, correlating it, and then — let's say it's your company — you feed that data as a data-as-a-service offering into all these operators, you're going to dominate, because you vetted all the inputs that go into that AI engine. Right now, a lot of it's just plain junk — you're going to bring in data, unit costs for cannabis, which costs are going to be grow costs, pre-processing, post-processing — there are so many opportunities to screw it up. So data — AI is a tool, I believe in it, but if you don't build the proper foundation and you put that antenna on top of that building, it's going to collapse on you. Kellan Finney: Yeah, I think, like you said, AI's value comes from allowing people to correlate a lot of different data points that were previously isolated, and I think that can provide very deep insights from an optimization standpoint, in whatever vertical their business is currently struggling with. Mitchell Osak: Absolutely. I'd love to get into an AI business where I'm the data conduit — I own the pipes that go to all these different companies, and I sell that data to AI engines within cannabis companies and other industries. Whoever owns that basically controls the means of production in these companies. Bryan Fields: Thank you for pitching our services. Kellan Finney: Yeah. Mitchell Osak: Well, guilty as charged — you guys aren't stupid. Bryan Fields: It's very kind, but at the end of the day, we've just taken the tools we just talked about. We had a North Star, an understanding, we understood a critical problem, and we just worked it, chopped it back to the point of, "Okay, where are we today, where do we need to go, in order to fill in all these blanks?" It turns out extraction is very difficult, and when you apply guesswork and don't do all the scientific tracking and the data behaviors we're talking about, it makes it even harder — and when your starting material is a plant, you've got even more inconsistencies. Layering all of that together just makes it even harder, and when you have a cash-constrained industry, you need tools, and you need to figure out how to do that. That involves having a North Star and working backwards, which is not the hardest concept, if we're going to be honest. Mitchell Osak: Yeah, yeah. And I don't want to disparage the entire industry — there are many, many smart people in it. But yeah, there's also a lot of Stockholm syndrome, and a lot of echo-chamber stuff. And what a lot of people don't understand — again, I'm a historian by background — we're headed toward an extinction event that has to happen in this industry. Bryan Fields: You can shame us. A hundred percent. Kellan Finney: Very sophisticated operators. Mitchell Osak: It has to happen because there's not enough capital and talent to go around. It's like a game of musical chairs — you're not all going to survive. Assuming Glasshouse, as an example, gets through this wave of troubles, and you've got, say, ten chairs in California, and they own three or four of them, and the music starts to stop — all of a sudden all these other players won't be able to sit in the Glasshouse chairs. They're going to be competing for even fewer chairs than there were before. I just tell operators, boards, and CEOs — that's typically who I deal with — at the end of the day, whether we like it or not, events are going to transpire that are either going to sink us, accelerate us near the top, or force us into a combination, a marriage with our peers, in order to survive. Those kinds of conversations have to start. Bryan Fields: With us — all right, yeah, it looks like you've got a call. Mitchell Osak: Yeah, hello? No, no, no, don't worry. Bryan Fields: Cool, I'm just going to let it pause for a second, and then I'm going to ask you the last question. Mitchell Osak: Yeah, sure. How's it going, by the way? It's good — you guys are great. Bryan Fields: It's not your first time. Mitchell Osak: Hopefully it won't be my last. Bryan Fields: All right, Mitch, last question — what question do you wish more people asked you? Mitchell Osak: Wow, I would say — assuming those people are running a cannabis company — I'd like them to ask, "What could we learn from outside our state, our geography, and outside our industry?" All the lessons are there. Bryan Fields: Perfect. And for those who want more of your lessons, who want to read your Substack — where can they find you? Mitchell Osak: Well, I'm on LinkedIn — I'm a prolific poster, so, Mitchell Osak, you can find me easily if we're not connected. My Substack is called the Cannabis Management Review — it's a rip-off of the Harvard Business Review, that's the kind of content I create — and you can find that at mitchellosak.substack.com. But if anybody wants to talk about business, I've got tons of articles, tons of ideas, and so on. I don't put the meter on immediately — we have to build up a relationship and trust, and then we can talk about all these strategic issues, and even more. Bryan Fields: Awesome, thanks for taking the time — this was a lot of fun. Mitchell Osak: Thanks, guys, great job.