How Real Wealth is Created with Distressed Assets and Shifting Strategies : Ryan Garland & The Mentor Who Changed Everything | Rob Sechrist E38 - The Paradyme Shift

Episode Transcript
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SPEAKER_02 (00:40):
All right, everybody, Ryan Garland here,
founder and chairman ofParadigm.
Thank you very much for joiningme today.
I am beyond honored andextremely excited to introduce
you to Rob Seacrest.
Rob is actually my mentor.
And if you guys are listening tosome of my podcasts in the past,
you know that I talk about thisman a whole lot.
So it's an honor for me to havehim today because you're going
to hear a little bit about mybackstory and how we

(01:01):
re-established our relationship.
And then we're going to kind oftalk deeper into what it is he's
doing.
I want to build awareness withmy network and including my
investors to have a uh maybeparticipate in what it is
they're doing because not onlyis this guy extremely smart, but
they're very strategic and uhthey have a deep-rooted
knowledge of what's happening inthe game, and they've they've
created a niche for themselvesto, in essence, in my opinion,

(01:23):
grab a monopoly on the on thebusiness.
So, so this is really kind ofcool.
So it's Polorous Capital Group,Rob Seacrest, he is one of the
founders, and I am extremelyhappy that you're here.
I couldn't even tell you howexcited I have been that uh
you're you you got on thecalendar, bro.

SPEAKER_00 (01:37):
I'm very, very grateful to be here, and I am um
beyond happy for you ofeverything that you've achieved.
And we've been watching whatyou've done and your growth.
And um we always knew you weregonna be a force.
Um to what to what level, weweren't sure.
Um, and uh, I'm just so so soproud of you.

(01:59):
Oh, thank you and your family.

SPEAKER_02 (02:00):
Well, that meant that meant a lot to me when you
called me the other day going,hey man, we gotta talk, you
know.
And I think it was my post onLinkedIn on the barn caves.
And you're like, that is a coolgym that he's building.
I gotta talk to this guy.
What's he got going on?
Yeah.
That was that was pretty cool.
Okay, so let's uh let's talk.
So we met back in 2008 when Iwas just a young, dumb loan
officer, right?
Kind of coming off the 08 crashand trying to figure my way

(02:21):
through and navigate throughthat.
And I actually had my first sonin 2008.
Yeah, so that was a hard timefor I think a lot of people.
Yeah, you know, and I rememberwe had a couple loans together,
and uh, like you mentionedtoday, I kind of got um kind of
got uh sideswiped a little biton that one.
And you guys like me, and you'relike, that poor guy got his butt
kicked, so maybe we'll take himunder our wing and and show him

(02:42):
the ropes a little bit.

SPEAKER_00 (02:43):
Yeah, I think everybody was getting their
asses handed to them in 2008.
And um, but that's a part of ashakeout, it's part of the
process that you know realestate goes through a cycle,
usually around every 10 years orso.
And, you know, you need to beprepared for those cycles when
they when they come.
Um, and uh, you know, we couldsee that you were uh a highly

(03:05):
motivated person with a lot ofenergy.
And um, you know, things, thebusiness seemed to be shifting
around a lot.
And um, you know, you asked uhto see if you could join us.
We're happy to make that makethat happen.
And um, you know, we tried to wetried to harness that energy.
And um we we got it, we got thattire by the tail for for a
while.

(03:26):
And um, you know, um it it was aa a time that um you know we
were all just cranking and doinga lot of a lot of business and
trying to put those bestpractices in from what we
learned from that um greatfinancial crisis, you know, for
for us, um, making sure that inthe next cycle, that typically
what happens in those cycles isthat the lenders are are staffed

(03:48):
to be originating.
And if they're not originating,they can't survive.
And if your business isn't uhset up in a way that you can
expand and collapse to absorbthose um market shifts, you're
gonna go out of business everysingle time there's a there's a
market cycle.
And so our philosophy was um wehad gone from having 40

(04:09):
employees directly that werelike, gosh, 20 of these people
are escrow officers and a bunchof these other people are um you
know processors and things likethat.
Why do we have these people onour payroll directly?
Why don't we just sub out forall that stuff?
So when we reimagined thestructure of the company, we're
like, we're only gonna have thevery top, top key employees, and

(04:33):
everything else is gonna bethird party.
So that as we go through thosecycles, that that there is that
that staffing issue is able tobe handled by the uh third
parties.

SPEAKER_02 (04:42):
And it's a perfect structure because less, you
know, as uh an employer, lessemployees is always good.
Less overhead, of course, butless uh emotions to manage,
right?
So you guys went from 40employees to what four?

SPEAKER_00 (04:55):
Yeah, um, I think it was three, four with you.

SPEAKER_02 (04:57):
Yeah, four.
So I was the only originator forthe company.
We had a processor and you andDan.
Yeah.
So you guys, we we had a lot offun.
Yeah.
So in the beginning, I think youguys were really kind of just
got done recalibrating,restructured your guys' firm.
I came on and you guys weredoing you guys were doing good,
but you guys bolted me on and wejust took off, man.
Yeah.

SPEAKER_00 (05:16):
If you remember at that time, um Dan is my best
friend and co-founder and um youknow my mentor.
And I don't know if youremember, but in reality, what
Dan had created is he hadfinancially engineered a new
product.
The idea that Dan had wasthere's all these qualified
builders in uh out there thathave been completely wiped out

(05:39):
by the great financial crisis.
And we were trying to think whatcould we do for these families
in their businesses to get themstood back up?
You've got idle people and youhave the most opportune time to
take advantage of products outthere.
And they have talent.
They have talent.
We already knew who they were,and but they didn't have any
capital.
And, you know, with with uh uhprivate money lending, you've

(06:01):
got to come in with, you know,typically 30 to 40 percent of
the of the equity that you needto close that.
And they didn't have that.
And so what Dan did was verystrategic is that we created a
new financial structure thathadn't been done before.
And what we did is that we did aum uh a private lending model

(06:22):
where all the borrower had tocome up with was the earnest
money deposit and to get theproperty tied up.
So what we did is we teamed upwith a hedge fund and we did a
product where our company, um,us, did the entire transaction,
but we broke it into an A Bpiece, the A piece being the
senior piece, which was the whatwhich was the loan piece, which

(06:44):
was ours that we raised thecapital.
So we lent a 50% um futurevalue, and we had a hedge fund
came in behind us and put in theequity on behalf of the
borrower.
And so we pre-funded theinterest reserve, and we the had
the equity fund did a profitsplit with the borrower.
And I don't know if youremember, but that product was
the first one to be uh puttogether.

SPEAKER_02 (07:05):
UN Essence built uh like a class A, class B slug is
what you did.

SPEAKER_00 (07:09):
That's what we did, and that was that 25102F.
And that's where we startedutilizing that structure because
it was really important to thehedge fund because it was one
senior loan recorded that wentup to 70% of the ARV after
repaired value.
But our A piece was only 50%.
So our investors loved it, butthe hedge fund was able to sell

(07:30):
it to their uh investors as asenior secured, but the B piece
in there, and they loved it, andwe crushed it with that product,
and that that that started thewhole evolution of everything
that we did.

SPEAKER_02 (07:42):
So let me just kind of give our audience a little
color, right?
So when back in the day, forthose of you that used to watch
Fix or Flop and ArmandoMontelango, the Hispanic guy
that had the uh, what was it,the F or the um Hummer, right?
And he was flipping propertiesin Texas.
Uh, and then you have, you know,a lot of these other uh what's
the what's some of the other umbigger pockets?

(08:02):
There was a lot of these othergroups out there that were
saying, hey, you could do 100%financing as a flipper, you
know, that type of stuff.
Um, that'll give you guys anidea.
Uh Dan and Rob were the onesthat tailored that uh 100%
financing product.
So when you saw all these fixersand flippers go out there and do
it, we actually had that productfirst.
And that's why we became the topproducers, literally in the

(08:24):
state.
I mean, we were crushing it.

SPEAKER_00 (08:26):
So that product became a product throughout the
whole industry.
Yeah many, many times.
So one of Dan's best gifts thathe has is financially
structuring products.
And so we basically say, youknow, um, capital is kind of
like water.
As the markets change, it justflows to where it needs to land
next.
And that's just the imaginationof recreating financial products

(08:48):
that work for that period oftime.

SPEAKER_02 (08:49):
And just to kind of give you additional, so at that
time when you guys created that,you gave me a product to, in
essence, go sell and buildawareness on, right?
And educate, like you like tosay.
So I was going out and speakingat all these events, and what I
ended up doing was figuring outa way to get in on the Armando
Montalango coaching system wherethey would have all of these
investors across the countrywould pay to be a part of a

(09:11):
coaching system.
They would have bus tours thatwould come up to California.
I had a relationship with thebroker that built the
relationship with the coachingcompany, and we'd have, you
know, every three months or so,300 people on bus tours coming
through.
And I was the only, you know,loan officer coming through
there.
And then they were, you know,obviously offering to their um
students that a lender like uswould be there and that we can

(09:33):
actually provide 100% financing.
So you could only imagine for myaudience right now listening,
how insane that it was thatafter 2008, when there was a
there was a bottleneck ofcapital where you have a firm
that figured out a way to do100% financing to catch that
swing on the way up in themarket.
So uh with that type ofawareness and me being able to
get into like uh Nick ManFreddie, he had a big coaching

(09:56):
system in Corona.
You know, he had, I don't evenknow, a couple thousand people
in that system.
So I was able to get in front ofa lot of uh borrowers.

SPEAKER_00 (10:02):
What made us um most proud is all these operations
were able to get operationalagain in these families in their
subs.
And there were there needed tobe somebody that kicked this off
because a bank that is notsomething a bank could do.
It's always gonna be privatecapital.
And these these families, therethat's their skill set, and

(10:23):
there was no other place to flipout to.
You know, they could go do uhbuilding for somebody else, but
that's not going to supporttheir whole family and give them
you know the the equity upsidethat they needed.
So and and there was massiveupside in those those projects
back then.
So uh the profit split was ifyou could if you could flip it
in 90 days, they got 70% of theprofit.

(10:45):
I mean, it was awesome.

SPEAKER_02 (10:46):
It's a big deal.
And you know, you're in somecases, you're like doubling your
money.
You know, it was prettyimpressive.

SPEAKER_00 (10:51):
Well, the the ROI and their their money was
unlimited because they we we wethey would actually get their uh
earnest money deposit back outat the end.

SPEAKER_02 (10:58):
Exactly.
Yeah, absolutely.
Because that was a first in,kind of first out kind of thing.
Yeah, for them.
Yeah, that was pretty cool.
Okay, so let's talk about uhreally the whole point for you
to be here today.
Let's talk a little bit aboutwhat the firm has morphed into.

SPEAKER_03 (11:09):
Sure.

SPEAKER_02 (11:09):
Um, I think I left right around 2014, kind of
started my own brand paradigm,and then you guys saw an
opportunity and you hung yourhat on it.
So let's talk about that.

SPEAKER_00 (11:19):
So, in so Dan is um always researching and looking
at where the opportunities arein in the lending sector.
And in 2014, our localcongressman, Dana Rohrbacher,
um, passed the RohrbacherBluminar Amendment, and that
amendment defunded theDepartment of Justice from any

(11:41):
prosecution of acannabis-related transaction.
And Dan came to me one day umand he said, Hey buddy, we're
gonna start doing cannabisloans.
And I looked at him, and thefirst I so the way that we run
the company is I raise thecapital, and Dan does the
underwriting um of the of thetransactions.
And I the first thing I thoughtto myself, this is gonna be

(12:02):
impossible to raise money for.
For many things.
Back then in 2014, the uh stigmaaround cannabis was um a
different place than today.
Um and there's just so many uhthings that before we could ever
even talk to investor, they theyhad already in their minds
turned off.

(12:22):
It's not gonna that they don'twant to be associated with it.
And so when he told me that, I'mlike, oh great, this is gonna be
impossible to do.
But um, you know, uh that passedin 2014.
We started researching it.
Dan is meticulous on how hethinks about things.
And so just raising the capitalis only one element.
You need to make sure that theprocesses um and all the

(12:43):
elements are there.
Is the title company able towork with us?
Can we get the can we make surethat the title company records
that this is a cannabistransaction so they don't uh,
you know, don't honor our titleclaim if we had to have one?
All of those things he workedout, and then by 2016, we
started originating our firsttransactions.
And um, you know, it really wasthe beginning of a of a new um

(13:10):
era for our company and what wewere doing.
And um ultimately we launched afund in 2018 specifically
focused on lending to cannabisuh sector, commercial real
estate.
And that fund um today uh we'vedone more than a half a billion
dollars with that fund.
Um and then we also recentlylaunched an equity fund, which
is what we're kind of here totalk about.

SPEAKER_02 (13:31):
So don't go too far yet.
So this is what's kind of wildbecause and I'm just gonna kind
of give some, and some a lot ofmy audience are actually uh
pretty deep rooted in financeand development, and they
understand what exactly it iswe're about to say.
But I as a private lender, Ihave my debt fund.
And so I'd have developers andborrowers come to me all the
time going, Hey, can you lend mylend me money on this commercial
building?

(13:51):
And it is gonna be for you knowa grow up or what have you.
And I would say, No, I'm sorry,I can't do that, right?
Even if you have your license.
So I would actually pass on it,and most of the times those
borrowers could not get bankfinance, that's for sure.
So they come to alternatives,guys like me, and even I was
saying no to it.
So you guys found a niche, whichis not which is not surprising

(14:12):
whatsoever, right?
Given your track record.
And then, and then, but let'stalk about how you structured
that because I think that'sgonna overlay kind of where
you're gonna end up sharinghere.

SPEAKER_00 (14:21):
Sure.
So in the beginning, um, it's ait's a brand new emerging
sector.
Nobody has done it.
And so it's a learning curve,and we're trying to use all the
best practices that we'vedeveloped over doing thousands
of transactions, more than abillion dollars in transactions
that we've previously done forum not related to cannabis.

(14:42):
We're taking all those bestpractices, but we're trying to
layer in the nuances that wouldthat would need to be in this
sector.
And so in the beginning, um, wewould lend on the real estate
value of the cost basis of theum of the transaction.
Um, but in the beginning, wedidn't cross-collateralize the

(15:03):
license from the tenant, whichmay or may not be related.

SPEAKER_02 (15:06):
Real quick, before I don't want to interrupt, let's
just to go deeper into the weedson cross-collateralizing.
When you say you lent on thecost basis, just for our
audience to understand, is itthe cost basis of the building
or both the building and thebusiness?

SPEAKER_00 (15:18):
Yeah.
So I'm really glad that youdelineated that.
So we only lent on the costbasis of the real estate.
Right.
And so back at that time,because of where we came from,
we just never thought about thethe business or collateralizing
that because in a normal lendingworld, you would never be able
to get that.
Nobody would ever give you, andit may not even be a related

(15:40):
party.
So you can't, they would say,you know, we don't have anything
to do with this this loan.
Yeah.

SPEAKER_02 (15:45):
So it'd be it'd be the the owner of the building
wants to lease out that to atenant that is gonna grow up.
Right.
So so they weren't related,correct?

SPEAKER_00 (15:52):
Right, yeah.
But but in how Dan was thinkingthrough all this stuff is he's
like, we had lent the firsttransaction we did.
I mean, free and clear property,the guy paid cash for it.
You know, it's a constructionloan for a million dollars.
We only advance after the guyhad you know made the initial uh
spend and then we verified itand we reimbursed him.
Yep, we cross-collateralized hisbayfront house in San Diego.

(16:14):
I mean, you couldn't be any moresecure.
So, but ultimately, Dan realizedthat we really need to make sure
because it's a specialty useasset, and really when you say
alternative use, the alternativeuse is just an alternative user
of the same.
You're never going to not have acannabis property.

(16:35):
I shouldn't say never.
You're you're 99% of the timenot going to have a cannabis
property that's gonna berepositioned for somebody else
unless it's just a dispensary orsomething like that.

SPEAKER_02 (16:43):
And let me share a little further.
I'm sorry, I don't want tointerrupt, but I want everybody
to get a very clearunderstanding of how much
in-depth you guys had to workthrough this stuff because the
the war room wounds that wetalked about yesterday, I I have
to touch on.
So um, so when you say a specialuh purpose building, ultimately
it's a building that's beingbuilt for cannabis.
So ultimately, it's not like thebuilding's like a regular retail

(17:05):
building or some sort of singlefamily home where you have
comps.
I mean, this is totallydifferent.
It's designed for the rightwater, the right electrical, the
right power, right?
The certain space where you canhave all of that stuff,
drainage, right?
All of that stuff has to becustomed.
No windows, no windows, yeah.
So totally like a totallyfreaked in weird building,
right?
But it's designed for that.
So if if so it's really hard tocomp.

(17:27):
And then two, if you were toforeclose, you you you have to
spend millions of dollars insome cases to repurpose the
building to be to the open, youknow, so market.

SPEAKER_00 (17:36):
On that point, so when we would get an alter, we
would we'd get an appraisal, asis future value, uh non-cannabis
value and and cannabis value.
But the thing that was ironic isthat the non-cannabis comps
never included what it wouldactually cost to decommission it
to get it to that.
And so I we always kind ofinternally, you know, like

(17:59):
really like where do you come?

SPEAKER_02 (18:01):
Well, who comes up with the numbers?

SPEAKER_00 (18:02):
Like, okay, so this building theoretically um could
be uh this size building squarefootage in this area could be a
self-storage.
Well, to get it to beself-storage, you would have to
come in and tear out everysingle wall, every air
conditioning duct, everyeverything that's in this
entire, all the water piping,everything that is in there, all
the the ADA compliant trays tomoving the cannabis across the

(18:26):
um, excuse me, the the rooms,and you would have to for it
would cost you millions ofdollars.
It would be it would be moremore than sometimes the building
would be.

SPEAKER_02 (18:34):
Yeah.
But it might be easier to justtear down the building and
rebuild at some point.
Yeah, for sure.
So that's the point is you know,the risk that goes involved.
And then obviously, even I thinkappraisers, you probably even
had issues with appraisers.
How do appraisers even howappraise something that they
don't know?
Yeah, that's new.
So I'm sure I can say I can onlyimagine every layer has been
something.

SPEAKER_00 (18:53):
Every layer, we had to educate people on what was
happening and what they weredoing, and um continue to refine
best practices and make surethat they are it's uh there's
just there wasn't the data.
And so we actually had to createa whole nother data company,
Floor's data project, that wouldeffectively be the co-star of

(19:15):
cannabis lending commercialproperties because nobody had
any of that data.
Nobody was public was producingit, and yet we had thousands of
loans that were flowing throughto us and we were capturing that
so that we could get the marketcomps, we could get the lease
rates, but no appraiser had thatbecause it wasn't public
anywhere.
So the only way they'd ever havethat is if they happened to have
done another transactionremotely in the area, but that

(19:37):
would have been stale.

SPEAKER_02 (19:38):
But you're the ones that are doing more of the
transactions by far than anyother appraiser.
So you're almost educating themon how to do it.
Yeah.

SPEAKER_00 (19:43):
So we would have to provide data comps and
information.
Um, and but also when we wouldget transactions from other
borrowers in their appraisals,we had all the data to to dig
into that and and basicallyvalidate it or just disprove it.

SPEAKER_02 (19:59):
Yeah, gotcha.
So yeah, so again, layer afterlayer after layer.
Okay.
So you get through your firstone, and how much money, how
much uh how much capital did youguys raise?
And then what was your AU AUMthe first year?

SPEAKER_00 (20:10):
Um, so you said this is 16?
Yeah.
So when we first started doingtransactions, we were
syndicating transactions just toget a feel for it and doing deal
by deal.
Once we got a feel for it, wethen we pivoted to launching a
fund.
And then the fund was taking asmall piece to get
diversification and we're stillsyndicating.
The plan was always to get tothe fund being just the the sole

(20:32):
vehicle.
So um in the first year 2018, itwas just a partial year, we only
had about 1.65 million.
So Dan and I are putting inmillions and millions of dollars
so that all the infrastructureand the operations are set up
for, you know, a$250 millionfund or whatever it was planning

(20:52):
on being at that time, but theincome wasn't there to support
it.
So we were supporting all that.
The next year we got up to$6.5million.
The reason that it was such astruggle is that there was no
investor that existed for thistype of product yet.
You you had either people thatwere willing to do cannabis at
the time were only equity, andthey were doing equity-like

(21:14):
returns and there wasn't.

SPEAKER_02 (21:16):
Into the business, not necessarily the real estate
part, yeah.

SPEAKER_00 (21:19):
Um there wasn't any but there wasn't any private
credit fund specially focused oncannabis.
And so and and just the moralitypart of a lot of people, we
never got a chance to explain tothem look, the that we are
actually helping this sector.
We are this is this is not forkids.
This is this is you knowlicensed, this is getting rid of

(21:42):
the illegal market.
Would you not lend to to, wouldyou send would you have that
same issue with the lending to adrugstore, a CVS that sells
opiates?

SPEAKER_02 (21:51):
Yeah, that's a good way to think about it.

SPEAKER_00 (21:53):
And so, you know, when it was we could quickly
de-conflict what what theirissues were when we had a chance
to talk to them.
Yeah.
But 99% of the time we didn'thave a chance to talk to them
because they're like, no, I justdon't want to do that.
But then we started posting ourreturns.
And the returns were phenomenal.

SPEAKER_03 (22:11):
Yeah.

SPEAKER_00 (22:12):
I mean, ridiculous.
And so then people startedsaying, well, look, maybe I'll
look at this.
And then COVID happened in 2020,and I also converted the fund
from being a standard fund to aprivate mortgage REIT for the
tax savings.
And that also was reallyimportant because the investors,
what most people don'tunderstand about a REIT is it's

(22:34):
one thing to have the qualifiedbusiness um uh classification to
reduce your taxability on theincome.
But in reality, that's not themost important thing.
The most important thing is thatindividual investors are only
taxed in their state.
So even though we're doingbusiness uh all throughout the
country and domiciled inCalifornia, you're not gonna get
a K1 from California, which isawesome.

(22:56):
It's huge.
Yeah.
And so that was reallyimportant.
And so that allowed us to startbringing in investors in um, you
know, low tax state or no taxstates, and it just took off.
And then COVID was really the umthe genesis of where it really
took off for a couple ofreasons.
One, cannabis was considered aum uh gosh, I forget the name,

(23:17):
emergency business where whereyou it was you it could be open.
Um uh I forget the terminology,I'll come back to in a minute.
Um, but more importantly, as allother sectors of real estate
were protecting the tenants,they didn't have to pay, you
couldn't evict them, and nobodywas coming to work anymore, and
real commercial real estate waswas faltering, our sector was

(23:41):
exploding.
In our sector, what I realizedis that the what the way to most
distinctly articulate it iseverybody is invested directly
or indirectly in a real estateasset class, whether it's
through your broker dealer, yourasset managers, or whoever it
is.
And what we said is that look,what whatever your allocation

(24:04):
is, a certain portion of thatallocation should be out
allocated to a specialty assetclass that is less impacted in a
real estate or economicdownturn.
And that when people startedthinking about it from that
perspective, and I switched thefund from being quarterly
distributions to monthlydistributions, I did everything
I could to make it as retailfriendly as possible.

(24:25):
That year we ended up at 54million, the next year at 150
million, the next year 250million, we got up to like 440
million or something like that.

SPEAKER_02 (24:33):
So you guys is cranked.
Yeah.
And so let's talk about thepositioning of that, um, those
assets now and where you plan ongoing, because we can go down
rabbit hole after rabbit hole.
But I I think really this is thefruit.
This is what people are I wantpeople to know, is right where
we're about to get into becausethis is impressive.

SPEAKER_00 (24:50):
So going back to that part where we lent on the
value of the real estate and andwe cross-collateralized the
businesses, the licenses, thebrands, the equipment,
everything.
But we never gave that value.
And our our thesis was if thingsreally hit the wall and we have

(25:12):
to take this property back, andif we can't find a third party
to operate it, we may have tooperate it ourselves.
And if we have to operate itourselves, we better have the
licenses because in reality,there is no alternative use that
it's going most likely it's notgoing to pencil.

SPEAKER_03 (25:26):
Right.

SPEAKER_00 (25:27):
And so as um years went on um and the markets
changed, and some states areunlimited licensed, like
California and Michigan, andother states are limited
licenses like Florida andIllinois.
There's a different marketdynamic in a unlimited license
state that's the best for the uhconsumer because you're getting
the highest quality product atthe lowest price.

(25:49):
In limited license states,because of the regulatory
capture in those states, you'renot necessarily getting the best
product because you have anartificial barrier that is
keeping the prices up and isprotecting those people from
having best practices that wouldthat would you know put them out
of business if they werecompeting in an unlimited
license state.
So ultimately, um as the eachstate is its own market, you

(26:13):
can't cross state lines.
And as these states are goingthrough what we call their
maturation process of you know,uh the state opens up, it's it's
everybody comes in, and youknow, any anybody can grow weed,
and it can be the worst weed inthe planet, and you can make
sell it for thousands of dollarsa pound.
Over within typically, the thecycle is usually within about 18

(26:34):
months to 24 months, the qualitystarts to get better, the
consumers start to become moreeducated, and the people that
came in that really didn't knowwhat they were doing, um, but
but they could sell anything,they go out of business.

SPEAKER_02 (26:45):
Right.

SPEAKER_00 (26:46):
And so you the market, it's a normal cycle.

SPEAKER_02 (26:49):
It's happening right now.

SPEAKER_00 (26:50):
We see it every time in each state, and as each state
comes online.
And so as that happens, though,the um some of those people are
going to fail.
Now, the industry or the sectoris doing very well.
The numbers of the income, it'sabout a$40 billion annual
industry across the wholecountry.
That that demand is not goingdown.

(27:10):
It's just where that revenueflows to, whether those
businesses can be profitable ornot.
And as they fail, that thatprofit or that income goes to
somebody else, and hopefullythey can be profitable.

SPEAKER_02 (27:22):
And so where we're at today is so the demand
doesn't change.
It's just like banks.
You know, as banks startcollapsing and you get smaller
and smaller banks, those banksare now getting more and more
depositors, right?
Same concept.

SPEAKER_00 (27:32):
So um ultimately, unfortunately, we had several
transactions that ultimatelycouldn't compete and were uh
wiped out.
And there's only so far as alender you can go to try to help
them through it.
Now, if we have a good actor, uhborrower that's trying to do the
right thing, we have we havemore latitude that we're willing
to go to in that circumstance.

(27:53):
Um if it's a bad actor, we wantto shut that down as quickly as
possible and and move on to thenext cycle of where we're gonna
go with that property.
Over time, we ended up um notforeclosing because remember, we
not only captured the business,the real estate, which would be
a foreclosure, but you aforeclosure would not capture
the cross-collateral.

(28:13):
So the cross-collateral, youhave the option of potentially
an Article IX sale, but that'snot as the best.
The best is a receivership.
So receivership is the same as abankruptcy, but at the state
level.
And so what we would do is putthem into receivership, and then
we would effectively wipe theentire capital stack, uh, all

(28:34):
liabilities for not only thereal estate, but the brands, the
businesses, and everything.
And now we owned everything freeand clear.
And at that point, we would thentry to find a third party to
step into that transaction.
If we were unsuccessful infinding a third party, or if
we're gonna have to put all themoney up for that third party to
come in, then we might as wellget the equity upside.
So what ended up happening isthat of these transactions that

(28:58):
we unfortunately had to takeback, take back, the businesses,
some of the businesses became umunbelievable opportunities when
um our team looked at it and umreally dug into it.
And we can get into some of thatwhen you're when you're ready.
But um, it really has morphedinto where we ended up having to

(29:18):
create a whole new fund tocapture the opportunity.
So just like when we started offthe podcast and we were talking
about um 2009 and the greatfinancial crisis and the reset
and all that opportunity, we'rein the same, we're in the same
period right now in this sector,but the upside to the investors
is orders of magnitude isn'teven the right word relative to

(29:39):
what it was on that side.
And so previously that upsidewas going primarily to the
borrower and the hedge fund.
Today, we've been able to modelthat where all the upside comes
to our investors.

SPEAKER_02 (29:52):
So let's talk about this.
So the structure.
So you lend money on the costbasis of the building, right, or
the real estate, but you'reencumbering all of the business
components too, including thelicense that was issued for the
cannabis or whatever, whateverthat practice is for that
building.
Right.
Because it's it'snon-transferable, and we talked
about this too.
So you uh you in essence acquirethat.

(30:13):
I love how you go intoreceivership, you wipe out any
of the capital stack, and thenbasically it's free and clear.
And then you, in essence, aredoing what I would say standard
practice of a PE roll-up, whereyou guys come in, you already
have back office, you can lookat the books and records and
start shaving costs for overheadand get that thing to turn up to
more profit, and then bring inother practices to actually get
it to produce more, you know,whatever it is that you're

(30:36):
doing.
Um, what how many let's talkabout your big picture?
What where you are now, how howmany assets you've ended up
having to take acquire back,which I know the number, but
it's that's such an impressivenumber.
And then kind of what how thishas ended up morphing, because
that's really what it comes downto.
I tell my team all the time, I'mgo, there's a reason I named the
company Paradigm, right?
You have to shift when themarket shifts.
And sometimes you don't see theopportunity when you created the

(30:58):
fund.
The opportunity presents itselflater on, and usually through
hardship or distressedsituations.
And so that's what I think hashas turned up for you guys.

SPEAKER_00 (31:06):
Yeah.
So, you know, I I always saythat your best asset managers
are the ones that have beenthrough distress.
That that's what tests the metalof an asset manager.
And if they've never beenthrough it, it's easy to say
that you crush it.
Show me a guy that's beenthrough two down cycles and and
how they what they learned,because that that's where you
really learned the workouts, thetough part.

(31:28):
Just originating and everythinggoing fine is easy peasy.
Those workouts is where you haveto put in put in the work.
Um but um, you know, so we endedup uh we ended up taking back uh
about 140 million of assets, andthose assets were all taken back
on the cost basis of the realestate.

(31:51):
We spun all those assets off outand launched a new fund.
The cross collateral of all thebusinesses we never valued.
So the new fund was seeded atthe cost basis, 100%, no
discount on those.
And now we are marking all thevalues of the businesses.

SPEAKER_02 (32:12):
So let's just let's just kind of dumb it down even
further.
You open up a billion dollarfund, because that's the
offering, right?
You open up a billion dollarfund, you guys are seeding it
with existing real estate thatyou've already foreclosed and
take back that is debt-free, andyou're putting$140 million,
seeding that that with with anassets that in essence, whatever
you're doing can either cashflow, but there's already

(32:33):
equity, and now the investorsare coming into the new fund to
advance that strategy.

SPEAKER_00 (32:39):
So in the new equity fund, the Ploris Growth Fund, it
got the real estate or thebusinesses, or both, but the
businesses were in that in thatnew fund.
So those businesses we hadn'tgiven any value yet.
So, you know, we can talk abouthow how we're we're how that

(33:00):
works out and how we do that.
But um that structure and thoseassets were became the ecosystem
that we then used to execute onthe bigger strategy.

SPEAKER_02 (33:10):
So No, sorry, the the the the businesses let's
just because you what's whatyou've done is you guys
separated the real estate andthe businesses.
You guys are from a differenthat, in essence, you guys are
coming over here with your teamand you guys are converting
those businesses into positive.
So, for example, you said youhad one that was losing a
million a month, now you got itback to a million positive a
month.
So as you guys continue to scalethat, and you now now those

(33:33):
businesses are generatingincome.
So now that that evaluation isdifferent, but then you bolt on
real estate, then you bolt ontax strategy, then you bolt on
all this stuff.
So as my our audience canimagine how far this can go.
So keep going, please.

SPEAKER_00 (33:46):
Sure.
So I'll give you uh onetransaction that is the ninth
largest operator verticallyintegrated in California.
It was a company um uh calledState House.
And the the thesis was right.
We it was to merge threecompanies together to become
vertically integrated.
And California is the mostcompetitive market, and it's the

(34:07):
largest market in the world.
And it is, I mean, unbelievablycompetitive.
And so, unless you're verticallyintegrated with scale, you're
not gonna be able to compete inthat state.
And so we originated a$77.3million loan secured by a
portfolio of 110 million of realestate.
We cross-collateralized thecompany.

(34:27):
Ultimately, we put that companyin receivership.
They weren't able to integratethe the company, the merger
together.
They weren't able to get thosethose cultures.

SPEAKER_02 (34:35):
It was And what were those cultures?

SPEAKER_00 (34:37):
It was um cultivation, uh dispensary, uh,
and manufacturing.
So it was three differentecosystems.

SPEAKER_02 (34:43):
Pretty much everything you need.

SPEAKER_00 (34:44):
Yeah.
And the the it just uh it wasunfortunate.
The right strategy just theyjust the execution wasn't
completed.
Uh we put in a receivership lastyear.
Um our team um has is verystrategic of how we set up the
receivership.
It's actually part of the coretenant to make sure that you you
don't lose the company inreceivership.
And so, and we'll I'll give youan example of what how ours

(35:07):
worked and another one thatdidn't, but that that was
somebody else ran.
But that uh in thatreceivership, we were able to
take that company from losing amillion a month to making a
million dollars a month.
We didn't lose any top linerevenue.
We were able to grow at 2% overyear-over-year growth while the
state itself decreased by 15%.
So we had a 17% net positivegain while in receivership, and

(35:31):
we went to the top creditor, uh,credit risk of the entire state.
And we turned around everythingand got that company operational
uh cash cash flow positive,EBITDA positive, and ended the
year at 106 million top linerevenue, and I think about$8
million EBITDA.
And the only reason it was only$8 million is that we we still
had some losses that we wereturning it around from when we

(35:51):
got it in May.

SPEAKER_02 (35:52):
So just this just just so we're clear, you went
from losing a million to makinga million, right?

SPEAKER_00 (35:58):
For the business level.

SPEAKER_02 (35:59):
For the business level, which now is$106 million,
uh you said$106 million a year.
Okay, that's separate than that$77 million in real estate that
was valued at$110 million.
That's a whole nother ballgame.

SPEAKER_00 (36:11):
So the way that we think about it, and this is a
perfect transaction, is toreally walk through why those
licenses and everything is soimportant.
The six pieces of real estatethat are were valued at 110
million, without this companyoperating those, there is nobody
that is gonna step in andoperate it.
So our value of our collateralwould have been wiped out.

(36:31):
There's some alternative uses.
We might have been able to getsome percentage of officers.

SPEAKER_02 (36:35):
So again, the building itself was designed for
this.
So the part of the conversationin the beginning was like we'd
have to repurpose the building,spend millions, and we you'd be
you'd be losing money.
There's no way.
No offensive.
Yeah.

SPEAKER_00 (36:46):
So parts of it.
This the the thesis was the thethesis was to stand up that
business and get it operating.
That's stabilized our realestate.
So today, that real estate isvalued at 100 million.
And so our um, you know, we'rewe're net positive just there
alone.
But we picked up the business.
And so the business now, we ownnot only the business, but all
the brands, and it also had aportfolio of dispensaries that

(37:09):
wasn't even part of ourcollateral.
It had brands that weren't partof our collateral.
All of that we brought in.
And so that strategic hub modelis one of our four strategies
that we implement across thecountry.
As what we did for our owncredit fund, we're doing for
other asset managers andcreditors across the country.
So we had to do it forourselves, but we realized that

(37:31):
all creditors are going to needthese, this.
Most of them can't actually evenown the real estate directly,
and they for sure can't own thecannabis business or operate it.
So the thesis was let's get itstand up for our stuff, let's
build the let's build theecosystem, and then let's go out
and track every receivershipacross the country and let's
look and see what assets arecomplementary using our data

(37:52):
project.
And if it's an asset that'scomplementary, all the creditors
know who we are.
We come into those creditors andwe we already know if they can
even own the asset directly ornot.
And I'll give you an example.
So we went to one that was um uhdoing a receivership of a
company in California about thesame size as Statehouse.
And we got the creditors toassign their credit rights to us

(38:14):
so we could foreclose on theirbehalf.
If it reverted back, then theycould do a seller carry back and
we would be able to acquire thattransaction for nothing down.
They're happy because theydidn't have to take a loss and
we can hold it from them andthen we can operate it for them.

SPEAKER_02 (38:27):
So let's unpack this because this is important.
This is probably one of the mostimportant.
So I'll use it as an example of08, right?
When all those short sales andREOs hit the hit the market, the
banks internally asset managershad no idea how to oversee them,
right?
So you they had to figure outways to create sectors.
They couldn't, you know, theywould, that's why they were
offloading a lot of these assetsto fix and flippers and working

(38:49):
with brokers and had REO agentsand so forth.
But they didn't have the theteam internally to manage it.
That's why they were alwaysoutsourcing it.
Same concept.
All of these lenders werelending, you know, a lot of
lenders were lending on theseassets, but once they took them
back in a distressed market,right, which they are in right
now, they don't know how torepurpose it and they're about

(39:09):
to lose their butt, like yousaid, and they don't know what
they definitely don't know howto operate, nor can they own it.
So what's happening is you guysare identifying those assets,
you guys are going after thoselenders in essence, saying, Hey,
we'll work with you, give us theopportunity to take over the
foreclosure in essence, we'llcome in and repurpose the asset,
and then you guys get back to apositive on your books.

SPEAKER_00 (39:29):
That's that's correct, but there's more to it
than that.
And we talked a little bit aboutlast night.
So um, as you as a fund manager,when you start to go into a
distressed transaction, you'renow having to adjust your low
and loss reserves for thatspecific transaction.
And if it's if it's becomingdistressed, it the value is
coming down.
And then you're starting to uhdo comps and theoretically you

(39:55):
should be adjusting your valueas quickly as possible to
increase the reserve if you haveto liquidate.
If if that property comes backto you, um, let's just say that
the proper, let's just say itwas a uh loan that you did for
10 million bucks on a let's justsay it to make numbers easy on a
20 million dollar valuation, butthe f the borrower failed and

(40:16):
they're foreclosing on it, andthe best prices out there right
now is only five million forthat same property.

SPEAKER_02 (40:23):
So five million dollar loss.

SPEAKER_00 (40:24):
It would be a tw it would be a five million write
down.

SPEAKER_03 (40:27):
Yeah.

SPEAKER_00 (40:27):
So they would be increasing their reserves on
that.
Now, if I can come in and I canrestabilize that that real
estate and stand up a businessso that it's back to a Original
use, all they have to do is getback to the 10 million.
If I can, if I can get them backthere and I can show them a path

(40:48):
through, they can release thatfive million dollar reserve.
If we've if we do a seller carryback for the whole thing, we can
we can we can clear five milliondollars off of their unrealized
loss reserve.
That's massive.

SPEAKER_02 (41:01):
Oh yeah.

SPEAKER_00 (41:02):
That is an immediate uplift for their investors.
Yep.
And so that's that right thereis something that you wouldn't
really think about as a retailinvestor of unless it's
negatively impacting you.
And we've had to deal with thisas ourselves as well.
But we realize that this issomething that the asset
managers need relief on as well,because without they're getting

(41:23):
they're getting this maximum uhprice disparity in in where
they're having to reserve for.
And if we can get them back outuh whole or closer to whole,
then that reserve can bereleased once the transaction
has been completed and everybodyis it's a it's a better
situation for everybody.

SPEAKER_02 (41:39):
It's a win-win.
And you guys are in essencepopping up more businesses,
which is more income, which is apart of your overall strategy.
You're helping the bank, youknow, basically not lose any
money, along with the investorsthat are back there.
So the fund managers are goingto be very open-minded to making
this happen.

SPEAKER_00 (41:54):
You know, we're we've even we're talking because
we're in the investor ecosystem,but in reality, we're we're
we're we're employing thousandsof people across the country
right now.
And those jobs are important tous.
We want to keep this countrystabilized, we want to keep this
industry stabilized.
And so it really is important tocreate an ecosystem where you

(42:15):
can save as many jobs aspossible.
And say, and you know, we don'twant to see people get wiped
out.
We want to try to save where wecan, what we can, um, for giving
some optionality for people torecover as best as they can.
So we think that we found thebest way possible in a specialty
asset sector.
That's not always true.
You know, um, I'll give you, youknow, specialty asset is

(42:35):
something like movie theaters.
There's it's only one use forthat, that theater.
Um, and you know, as the marketsstart to change and people
aren't going to the to thetheaters anymore, you've got all
these theaters that are idle,you know, that are probably not
making money or making verylittle money right now.
And it's who knows if that'sgonna get turned around.
And so, how are you gonnareposition?
How are you gonna we have thesame thing, it's just a

(42:57):
different class, and we've got abetter way through.

SPEAKER_02 (43:00):
Well, I'm gonna I gotta tell you a story.
So, right here in Lake Avassar,so I don't know, 200 yards from
us is the is the North SideMall, right?
So uh the shops or whatever theycall it.
So they the movie theater washaving a hard time, and they
actually uh in essence separateda movie, a part of the theater
and opened up a Buffalo WildWings in there.
So they actually took up some ofthe actual movie theater and

(43:21):
built a Buffalo Wild Wings.
So it's it's that's how theyrepurposed that building.
They still have some of it asleft for movies, and the other
is now arrested.

SPEAKER_00 (43:29):
So, you know, in a traditional bank, you don't have
anybody that can make those.
You might have somebody thatcomes up with the idea, but it
to get that all the way approvedand to into things, the banks
just sell those properties off.
Nobody's really working it.
We are freaking working everysingle option and you know, some
reiterating and and and then andand it starts to to grow.

(43:53):
Once you start to come up withstrategies, then you can start
to expand that strategy acrossthe country.
So, and back to um State House,in that particular transaction,
we realized that we had a uhstrategic hub model that we
could now take other assets thatwe had taken back in the state
and start adding themcomplementary to that ecosystem.
And so we believe that we canget from number nine to number

(44:15):
four within the next probably 90days in the entire state.
And while, you know, the ifthere is about 1,500
dispensaries in the state ofCalifornia.
And uh Statehouse is currentlyin, I think like four or five
hundred of them that they'reselling their product, but we
own 12.
We've just contributed anotherone, we own 13.

(44:37):
Why that's important is how manyyou own is that your margins on
your own branded products areabout double what they would be
if you were selling in anotherstore.
And so every single dispensarythat is out there that is a
standalone dispensary on itsown, they don't have the buying
power that we have.
They don't have the cost savingsof the management, and they

(44:58):
certainly don't have the abilityto bring in their own vertically
integrated products, brandedproducts onto their shelf space
and pick up that double themargins.
And so, with just those threeelements that I just shared with
you, we can take a standalonedispensary, laterally move it
into our ecosystem, and we canincrease the EBITDA
profitability by 27%.

(45:19):
And we can acquire thatdispensary.
I just happen to know thefigures and uh off the top of my
head, um, the one that we justcontributed was about 7 million
of top line revenue.
It was doing about 655 of uh netannual EBITDA revenue.
And that transaction is thoseare trading at one to two times

(45:40):
multiple.
If we use two times multiple,roughly$1.3 million cost basis,
we could effectively give thatdispensary$1.3 million of shares
in our fund, because without usbeing there, they're gonna go
out of business because we'regonna, we're gonna, if it's not
them, we'll do the dispensarynext to them.
We can take that dispensary andtake it's it by adding those

(46:03):
three elements that I justshared and take the uh the
profitability up to, I think itwas uh 2.2 million or so.
And now because it's in ourvertically integrated ecosystem,
the multiple is 4.5.
So we just picked up uh thatsame store, I think, would be um
around 7 million or somethinglike that.
I can't remember off the top ofmy head.

(46:24):
And I think we net about 6million enterprise value to the
fund from one dispensary, and weincreased the revenue from 655
to by you know over a milliondollars.

SPEAKER_02 (46:33):
And so not only do all these dispensaries actually
have real estate holdings, butsome of them do, right?

SPEAKER_00 (46:38):
Well, we don't need the, we only actually need the
business.
We don't even need the realestate.
Yeah.
So it's like the whole dynamicschange, uh, interestingly
enough.
And so if we're out there toadd, you know, uh 100
dispensaries in the next six to12 months, if we just use those
same numbers, that's 700 millionof additional top line revenue

(46:59):
and hundreds of millions of netEBITDA positive.
And we're just gonna keeppicking up economies of scale.
And so that's why we, when welaunched the the growth fund, it
we did a billion dollaroffering, and and a lot of
people said, How are you gonnaraise a billion dollars of
equity?
Well, we're gonna raise equityas we go, but we don't need a
whole lot of cash.
We're actually gonna be usingthe chairs as one of the ways of

(47:22):
acquiring something.
So if you're that seller of thatdispensary um and there's no
maybe no but no buyers outthere, not only can you
contribute, but you're gettingyield on, you're participating
in the upside of what you justcontributed.

SPEAKER_02 (47:34):
Yeah, and so and they keep their business, they
keep the employees.

SPEAKER_00 (47:36):
You can give them a cash offer, but it's certainly
not going to be uh full price.

SPEAKER_02 (47:39):
Yeah, right.
You're giving them full pricefor the most part on what
they're already making.
And then you come in, then likeyou said, you bolt on some of
your guys' infrastructure, yourguys' product.
You guys are covering backoffice and starting to shave
down their overhead.
Yes.
And now you're seeing it tocreate revenue that bolts on to
your guys' portfolio, and nowthey get shares on the overall
exit strategy of this project orthis entire uh operation.

SPEAKER_00 (48:01):
So that's just one of several strategies that we
have that you know, some of thestuff we don't want to talk
about all the things because weit it is a massive opportunity,
and again, we're the we'releading it in this sector right
now.

SPEAKER_02 (48:14):
But can't tell all your secrets.

SPEAKER_00 (48:16):
There's there's other asset managers that are
going to be uh executing onsimilar strategy, um, but we'll
we're pretty far ahead of them.

SPEAKER_02 (48:22):
I think right.
Um okay, so let's talk about thefund and the opportunity here.
So let's go back to seeding thefund, the billion-dollar fund.
What's that look like?
What are we trying toaccomplish?
What's the next move?

SPEAKER_00 (48:32):
Yeah, so we seed it with 140 million.
Um, we're actually waiting forour third-party reports to give
the valuations to the businessesright now.
Um, I don't have that thatvalue, but um, you know, we
didn't pay anything for them.
So uh it's it's gonna be netpositive.
And uh the each acquisition thatwe do now going forward will

(48:55):
will be at a much higher uhvalue increase to the fund
because the first assets that wewe acquired, we acquired it on
100% of the cost basis of thereal estate.
That's the first and only timethat we'll ever do that because
it was our own existing uh uhfund.
Going forward, we will acquirestuff that's not our stuff, and

(49:15):
we will get those at discountsor use our shares or many
different strategies that we'regoing to use.
So the fund is structured as anopen-ended evergreen fund, 2%
asset management fee, and 8%pref with an 80-20 split.
We do quarterly uh statements,and it is not this strategy, it
is not an income fund.

(49:36):
This is a growth fund.
So, what we're trying to do ismaximize all the revenue,
everything that we have, we'rereinvesting into the business.
And so this strategy is if youput in 100,000, we're looking to
get you a four to five timesmultiple in four to five years.
So that's our target within thecurrent legislative landscape

(49:58):
structure right now, which is a20 to 25 percent targeted uh net
IRR yield.
But I think that that um we arehopeful that we can outpace
that.
The current landscape in thecountry is um, you know, because
cannabis is federally illegal,cannabis is current currently uh

(50:18):
considered a Schedule I drug,meaning that it it's the same as
heroin, it there's no medicaluse for it.
And why I'm going down this roadis it's really important to know
that on your federal taxes forall 25,000 businesses, which we
track them all across the entirecountry, on their federal tax
returns, they're paying taxes ontheir gross profit, not their

(50:39):
net profit.
And imagine having to not beable to write off your
deductions and having to pay iton the gross profit.
It's it's it's insane.
So under the Bidenadministration, about two and a
half years ago, um uh Bidenrequested the HHS uh go and look
at rescheduling cannabis fromSchedule 1 to Schedule 3,

(50:59):
meaning that there's a medicaluse for it.
That uh HHS came back andapproved that, and now it's with
the DEA to be approved.
Trump has already um many timesuh indicated that he would sign
it if it got to his desk.
Um, but this this is actuallyrescheduling is only in the
executive branch and there is nouh Congress involved.

(51:21):
And so this is really importantto understand the distinction
here.
So right now um rescheduling isit at the DEA, and we're
expecting POM Pam Bomb Pam Bondito most likely uh give the final
rule uh sometime in 2026.
Why that matters is that oncethat is approved, now the IRS
will only charge taxes on netprofits.

(51:42):
And so we expect there to be a20 to 30 percent uplift to the
bottom line of all businessesacross the country on a revenue
uh on a revenue basis.
But more importantly, themultiples is going to go from a
four to five times multiple toan eight to ten.

SPEAKER_02 (51:58):
So there's you're really it's just unlocking more
opportunity for investors, iswhat's happening.

SPEAKER_00 (52:02):
We're for the industry overall.
So our our position is you needto be able to your business
needs to work in the currentecosystem.
And if it doesn't work in theyou can't depend on legislation
or executive orders um orexecutive actions to fix your
business.
If you can't compete in itsuccessfully now, then you're

(52:22):
it's not gonna work.

SPEAKER_02 (52:23):
Yep.

SPEAKER_00 (52:24):
But there are some things that could give us some
significant enhancement, um,which we're we're pretty bullish
on those happening at some timein the future.

SPEAKER_02 (52:31):
Okay, so so going back to the fund.
So you guys open up a billiondollar offering, you guys are
taking assets that you guys havealready repurposed and now, in
essence, generating income onthe growth strategy.
You're putting$140 million intothis fund to show proof of
concept that you guys have skinin the game, and now you guys

(52:54):
are going after raising capital.
And it sounds like you're gonnado it in a pace where as you
guys have new assets that youguys are identifying, you are
then strategically positioningthose assets on your guys'
strategy, whether it's you know,we're dealing with certain
infrastructure, bringing in yourproduct, whatever it is, because
every every dispensary and everybusiness has its own culture

(53:14):
that you have to go identify andwhere they're missing, you know,
what they're missing, what youwhere you can do to help.
Once you've identified what canbe done, you're then identifying
that to the investors, puttingit into basically, hey, here's
another option that we're gonnago after and buy, and this is
what your projections are gonnabe after X amount of time.

SPEAKER_00 (53:29):
Kind of, but we can't tell the investors in
advance.
It would it's privilegedinformation.
Sure.
Um, it so they will find outwhen we close on the stuff.
So some of the things that we'reworking on are publicly traded
companies.
And so that it's not astandalone transactions where we
have that opportunity to sharethat.
Um we we would make ourannouncements in our quarterly
reports and or publicly tocertain certain things we're

(53:52):
gonna announce publicly, certainthings are only gonna be
disclosed internally.
So there's things that that weyou and I discussed last night
that um that are not proof ofconcept, fully uh eliminated
100% of execution risk of ofsome things that are um game
changers for the whole entirecountry.
And unfortunately, we can'tshare that yet because we have

(54:13):
the first mover advantage.
And um when that becomesdiscovered, it's gonna be a race
to see how figure out how we didit.
Yeah, and that's a whole notherasset that we figured out.
And I can tell talk a little bitabout that asset if you want.

SPEAKER_02 (54:26):
I just saw everybody so we're clear, at least I know
that.
Yeah, I know the real truth.

SPEAKER_00 (54:29):
Yeah.
So the the entire cannabisindustry is federally illegal,
but uh statewise legal in thestates that have approved it.
And so what retail investors inyou know in this industry they
they don't they don't followthis, so they don't know.
There is another uh landscape oflicensing, and it's a f at the

(54:52):
federal level, and nobody knowsthat this exists.
And so uh there is a researchlicense uh that the DEA has that
has been around for I think over40 years, where um the
University of Mississippi had aDEA license issued to them for
research.
And so there are uh there wasone cultivation license issued

(55:13):
to the University ofMississippi, and then there was
uh several, I don't even know atthe time if there was any
research or if they were justdoing it themselves.
Um and I should know this, but Idon't know it.
I'll I'll maybe we can edit itback in.
But um some legislation passedwhere they actually um part of
the legislation was to increasethe universe of research on

(55:34):
cannabis at the federal level.
And what that did was it changedthere was gonna be a total of
seven cultivation licenses uhapproved, and there was going to
be only cannabis uh cultivatedfor research in the can in the
uh federal ecosystem.
So this is not going to be forretail, it is only for research.

(55:57):
But now that is the genesis ofwhere you get to have drug
companies and do start doingstudies at GMP certified
facilities and and the qualitythat needs to be and and also
research is cannabis isdeveloped in a different pathway
than recreational.
Recreational is for how good itsmells, how the high is um

(56:17):
yields.
Cannabis research is isspecifically uh not for yield,
not for smell, not for any ofthat, is to target what it is
that you're trying to have haveuh resolved.
You know, and so it's it's ayou're it's a it's a totally
separate track.

SPEAKER_02 (56:34):
Right.
And people don't when you thinkabout it, it makes sense, but
but how to consume it, howthey're gonna, yeah, all of that
stuff.

SPEAKER_00 (56:39):
It's gonna be a pill.
It's going to be a differentform factor.

SPEAKER_02 (56:42):
IVs.
I mean, there's so manydifferent things that can be
done.

SPEAKER_00 (56:45):
Use and so in that um universe uh of that or that
ecosystem, it's to just onlyproduce cannabis to sell within
those research uh labs acrossthe country.
It's a it's a it's a veryprofitable market, it's a it's a
great market, but um what wewere trying to do and what we
were working on is one of ourborrowers was in had one of

(57:07):
these licenses.
Unfortunately, we had toforeclose on that on that
facility, and we we we got thelicense with it, which is one of
the most valuable licenses inthe country now.
We've also now realized that wehave been able to think about
that license in ways that otherpeople hadn't thought about.
Um, one of them is that I cantalk about is that we believe

(57:27):
that the the VA, we have afour-star general that's the CEO
of that company.
We believe that we'll be able toget the the VA at some point to
accept cannabis directly, eventhough it's not in the research
ecosystem, because that uh Ibelieve that we the Department
of Homeland Security already hasit approved.
We're just not doing any productto them.
So that ecosystem, and that's abig market, and that that in

(57:49):
itself is is back to you knowtrying to help businesses, help
the industry.
This is this is a bigger thingthan just us.
We, you know, I'm not a uh acannabis uh user, but I do
believe in trying to mitigatethe opiate crisis.
Yeah, I do clearly I do wantthere to be uh regulated
cannabis.
I I I don't want uh kids beingable to get out there to be age

(58:11):
barriers.
And you know, I think thatthere's a massive benefit here
that we could uh that we couldstart looking at in something
that we should have been lookingat for the last 50 years.
And so we're excited about that,but there's more opportunity
that we realize that we starteddigging into this license.
What's interesting about thisparticular license is that
because cannabis is federallyillegal, um, most licenses, you

(58:31):
cannot have uh publicly tradedcompanies that are US companies,
domiciled in the US, on the USmajor markets.
So the only cannabis companiesthat are on the major stock
exchanges, US stock exchanges,are international companies.
And so all the US listedcompanies are over-the-counter
or uh Canadian company orCanadian listings.

(58:52):
So what's unique about this DEAlicense that we have, we can
take that public.
We're gonna take that publicthis next year.
Now man, how cool is that on amajor exchange on NASDAQ.

SPEAKER_02 (59:00):
That's a big deal.
Yeah.
Yeah, and so ultimately you'rejust able to cast the net
farther and wider, wider.

SPEAKER_00 (59:05):
And there's more to that story.
Um, and it's a bummer that Ican't get all the way to share
everything about it, but there'sa reason that we there's a
reason that we have to keep thatunder wraps because of when it
when it does come out, it'llchange the valuation of
everything we're working on.
And then everybody's going to betracing every trap that we laid

(59:26):
and trying to figure out what itwhat it was and how we did it.

SPEAKER_02 (59:28):
Yeah, good for you though.
But hey, that's sometimesleading the ship and creating
that niche, like I said in thevery beginning, you guys created
a niche and you figured it out.
And you guys, so that's a youknow, kudos to Dan, too.
And I know he's gonna listen tothis at some point.
He's always been that businessstrategist that has been able to
implement amazing newtechniques, but he's he's really
compliance driven.
He really makes sure that all ofthose, all of the features and

(59:50):
all of the things to get from Ato B and A to Z really is in
place to get it done.

SPEAKER_00 (59:55):
I call him a financial engineer.
Um and and he's just he's just adata process-oriented guy with
with principles that he'simplementing in that whole
ecosystem of what he's trying todo.
And he just reiterates andreiterates and reiterates and
looks and tries to find a way tomake something happen.
And once he has an idea, a lotof people, I think it's more

(01:00:19):
common than people realize ofcoming up with good ideas.
It's the execution of the ideathat that you can do it in a
timely fashion fashion, raisethe capital and make it
profitable.
And Dan has done thatsuccessfully many, many times.
And um, sometimes in thatprocess of of getting to the
other side, there's some placeswhere it it feels uncomfortable

(01:00:39):
and you know.
Um uh you know, your investorsmay have doubts that you know we
didn't we never plan on takingback this much in real estate.
Um luckily we had an elementbuilt in to be able to stabilize
and to take advantage of thatsituation.
But if we didn't have that, wewe wouldn't be in a
significantly differentsituation.

SPEAKER_02 (01:00:57):
Yeah, it's so yeah, encumbering the business was
unbelievable.
And then obviously, becausereally what you did is you said,
hey, we have a special purposebuilding, right?
And we can't just repurpose thisthing without burying a bunch of
money or taking a hit on theexit, just fire sell this thing.
We need to bring in an operator.
And so you guys got smart andsaid we need to go find the
right operators that are realbusiness oriented.

SPEAKER_00 (01:01:17):
Let's talk about that for a minute.
So we're tracking um through ourown portfolio of existing
borrowers in our book.
We're looking at with the in ourown data company, we're we've
established the means uh of eachlicense type in each state and
each latitude.
And the reason I say latitude isthat uh if it's an outdoor grow,

(01:01:38):
or sorry, if it's a greenhouse,we don't do outgrow growth, so
we only do commercial buildingsor greenhouses.
Every uh 1% loss of of light is1% loss in production.
And so the higher up in latitudeyou go, you've got shorter days,
uh, or sorry, you've got umlonger, potentially longer days
and longer lights, or shorterdays and shorter nights, but
also you have fog, you have fogand or clouds, and that's

(01:01:59):
impacting.
And so all of this informationwe had to put into our
underwriting, and every borrowerthat came to us only has the
universe of their transactions,or maybe the company they worked
at before, or maybe their peersin the area.
We have the entire country.
Yeah, we have seen this happen.
Every single I'm an unlimitedlicense state.
Limited license states, andwe're watching what's happening.

(01:02:19):
And then we also have the flowof deals that are coming to us,
and we're re-re picking up newdata points that haven't closed
yet necessarily.
We can see price discovery ontransactions before it's closed.
So we have market climbs.
We might not have done thattransaction, but at least we
know with the market what's outthere and what's happening.
All that data helps us to refineand understand what we're

(01:02:40):
looking at for best practices.
And where I'm going here is thatas we started taking
transactions back, we alreadyknew who the best operators
were.
So if it's an operator withinour book, we would then say,
Hey, can you want to operatethis one for us?
That's our that we want to tryto the least amount of uh
execution risk as possible.
We don't want to have to operateeverything ourselves, but we

(01:03:00):
would go to our own existingpeople.
And if we don't have somebody,we knew who the best people were
in the area.
Um, we also, you know, becausewe're private, come from private
credit, we understandstructures, we understand the
equity because we had tounderwrite the equity, but we
weren't operators.
And this is where a lot ofinvestors, um, as we talk about
this, say, well, what do youguys know about cannabis?
Well, we don't we don't knowabout cannabis, but we do know

(01:03:23):
what what makes the businesseswork, but we don't know how to,
we don't know, we don't run themourselves directly.
So we've know who the bestoperators are in the country.
So we brought on the topadvisors to help us.
We brought on um uh co-founderof Cresco Labs, we brought on
uh, which is Joe Cadabiano, webrought on Charlie Jackson, um,
one of the most prolific umearly investors into the sector,

(01:03:46):
uh, son of Phil Jackson.
We brought on um many differentenviron advisors, um, one of the
earliest guys from KKR.
These guys have been in thecannabis industry for decades,
and and um really refine thatprocess of operational execution
and know how to run thosebusinesses.
And so we just bring in as afund manager, we can't possibly

(01:04:10):
know all the nuances of everysingle one of these types of
different types of business,different types of licenses in
different states and all thecompliance.
So we just hire the very, verybest that we can possibly get
for each transaction.
We build that team, we buildthose ecosystems.
So back to Statehouse, what thestrategy was there is that we
brought in the who we felt wouldbe the best CEO to turn that

(01:04:31):
transaction around.
We oversee it, we make decisionswith them, but they're executing
and running those businesses atthat level.

SPEAKER_02 (01:04:37):
Oh, dude, I love it.
So and obviously their theirtrack record and their history
and what they've seen alreadyfor being it for years and
years.
I'm assuming what you guys arelooking at from a numbers
perspective, you have all thedata points, they're coming in
and going, okay, boots on theground, here are the
deficiencies, here's how we canadjust.

SPEAKER_00 (01:04:54):
So we so from our level, we're not the operator,
but we can say, look, you haveum you are 20% underperforming
for what the average is of allof our data.
So it's possible.
We can tell you it's possible.
Um now, here's what we're wherewe think that this the way that
we've seen it being done before,and this is you know, this is

(01:05:16):
this is how we would suggestdoing it.
And now you go and execute onit.

SPEAKER_02 (01:05:19):
Oh, dude, I love it.
And and and your team's gettingaccess to that data too.

SPEAKER_00 (01:05:23):
Yeah, now uh it conversely, yeah, we can see
somebody that's outperforming by20%.

SPEAKER_03 (01:05:28):
Yeah.

SPEAKER_00 (01:05:28):
And we're like, okay.
Either way, we need to know whatit is.
And so when we see thatoutperformance is just as
important underperformance isjust as important too, is we
want to keep reiterating to belooking for those things.
But when we see those, thatoutperformance, we want to know
is this something we cananonymize and start providing

(01:05:49):
this to our whole book to helpthem stabilize and be more
efficient?
Because if they don't do this,they're gonna get wiped out by
the competitors.
And so we want to help them getin front of that.
And I'll just kind of share whatone of those are is that we can
reduce the uh cost of labor byup to 90%.
Um, and labor is and energy areyour two kind of largest costs

(01:06:09):
in the sector.
Um, and there's another way thatwe can get another 20%
production out of the uh thecrops, and this is now kind of
widely known, so I'll share it.
Is that um uh previously the uhLED lighting it didn't work, um,
and it was because nobody hadbuilt in what we would call full
spectrum of lighting.
It was just LED lighting.

SPEAKER_02 (01:06:31):
Uh the circadium rhythm, right?
The real lighting.

SPEAKER_00 (01:06:34):
So it's a plant, it's something living, and the
regular fluorescent uh theregular LED lighting wasn't
built for plants.
And so the first thing was is toput in full spectrum, and most
people never once they whathappens in this industry is
people try things that don'twork and then they never come
back.
But in reality, uh the a bunchof people tried um uh LED

(01:06:55):
lighting and it didn't work andthey they they never came back.
But in reality, the guys thatwere top producers reiterated
they changed it to fullspectrum, that started working,
so now they're saving money onelectricity, which is massive.
But we ultimately realized thatwe could get the lights closer
to the plant and we could putthe lights under the plant, and

(01:07:15):
that got 20% yield.

SPEAKER_02 (01:07:17):
Are you guys doing like water filtration, air
filtration, all that stuff?

SPEAKER_00 (01:07:20):
Oh, yeah, that that's all that is.

SPEAKER_02 (01:07:22):
You ever heard of a company called Daylos Wellness?
No.
So Daelos, this was a uh a groupthat we were tied to years ago.
Um, probably actually, believeit or not, right after like you
know, uh I opened up Paradigm,um, there's a company called
Daylos Wellness.
What they were doing is theywere chasing down, so they they
partnered with IBM, obviously,and then they partnered with uh
Cleveland Clinic and MayoClinic.

(01:07:44):
What they did is they weretaking all the LEDs and all the
synthetic lighting out of homes,offices, all the space, because
we spend 70% of our livesindoors.
What they did is they went afterreal synthetic or real uh
circadium rhythm lighting,right, that goes with the sun,
uh, all the way to where youwake up.
They tracked, they took humanbeings and put them in air
filtration, water filtration,and all this lighting into the

(01:08:05):
Cleveland Clinic and MayoClinic, and they studied them
for weeks, like two weeks at atime.
And they looked at likehealth-wise, like from um yeah,
you know, from sleep uh trends,like all the chemicals that your
body would create, right?
Just with certain foods and whathave you.
And they were able to trackstuff down to like um
Alzheimer's and some of theselike diseases, the house, a lot

(01:08:28):
of it can actually be tracked,it doesn't help off of synthetic
lighting.
And I was really impressed.
And I was like, it was funnybecause I was like, I wonder if
they're gonna use that for thegrow industry, because that's
exactly what, and plus uh andair, right?
And then obviously water.
So I was wondering if you guyswere probably you know knee deep
and all that.

SPEAKER_00 (01:08:45):
All of that is uh so the the the original industry
was basically created what wewould call the illegal industry,
we call it the legacy industry.
And you say it you basicallyhave um uh guys that uh
originally were just growingoutdoors and just trying to
figure it out and making itmaking it work, and then they
started moving to their mom'sbasement, and they weren't um

(01:09:09):
from the ag industry and trialand error, and some of those
guys are some of the best outthere, and they've they've
really figured it out, but theydidn't have the um experience
from big ag from mainly the umornamental industry is what
would be most similar tocannabis in the uh

(01:09:30):
sophistication of of growing.
And so they didn't know uh howdo you scale something from your
mom's uh basement at you knowmaybe uh a hundred lights to
333,000 square feet with youknow that a scale.
And they didn't know how toimplement those systems and to

(01:09:55):
refine those processes andthings that big ag had learned a
long time ago, these guysfigured it out on their own, but
they didn't know why.
And so, and and they didn't knowwhat things were were so
important, um, and but they theylanded on it somehow, but they
didn't know that that was thevariable that was changing it.
So today, um, we were one of thefirst to bring in a uh PhD

(01:10:18):
ornamentals guy.
Uh, and this is kind of aninteresting story.
So normally when you underwritea transaction, um, let's just
say we were doing a loan on a umuh furniture commercial
building, we'd look at thefinancials and just see that
they're doing fine, and you'regonna make that loan based on
his uh on the businessfinancials and their, you know,
um the appraised value.

(01:10:38):
Well, in this industry, werealize that that's not enough.
We actually need to uh go in andreview his furniture building
processes and the SOPs and lookat the entire thing because we
need to make sure that they areset up to be competitive with
their peers.
And if they're not, and andremember, everybody is starting
on their own path.
So there is no um, there reallyaren't some best practices.

(01:11:02):
Now, now over the years, there'ssome some stuff out there, but
we had to go in and start havingour underwriters send in our
cannabis reposition team on thefront side to let us know, no,
this building, the roofs are toolow.
They're always gonna have ahumidity problem, no matter what
they do.
And they don't know it yet.
And you can't tell somebodythat's already 10 million in

(01:11:24):
that look, guys, this willyou're always gonna have a
problem with this.
And until you solve for this,you're going to be less
efficient uh over time.

SPEAKER_02 (01:11:32):
So, yeah, if our air filtration is all gonna be
important.
What about what about buildings,like building compliance, like
to city codes and stuff of thatnature?
So fire, yeah, fire protection.

SPEAKER_00 (01:11:42):
Yeah.
Um so think about this plants uhfeed on carbon dioxide and
produce oxygen.
So in our indoor cultivation,part of the things that we're
solving for um is not onlylighting uh and humidity, but
also we're solving for we canget more yield out of those

(01:12:04):
crops by injecting uh carbon uhCO2.

SPEAKER_02 (01:12:08):
Wow.

SPEAKER_00 (01:12:09):
Now, the problem is that CO2 is toxic to humans.
Yeah.
And so um bunch of peoplefalling asleep in there.
Well, uh so and and the thing isyou wouldn't notice that that's
the case.
And so all those sealed,hermetically sealed rooms with
no with only one door, you know,and no windows have to have an

(01:12:30):
alarm.
And you know, these are allthese facilities are built at
when you go into our facilities,if you look at our website and
some of our pictures or videos,you can see that it looks like a
a lab facility.
Yeah, I mean it they're they'rewell wearing lab coats and and
they are top top tierfacilities.
It's just the product happens tobe a plant in there.
So all that stuff is factored inand that those uh we have

(01:12:53):
contamination, all that, right?
One facility that we were thelender on, the uh alarm failed
for uh, but nobody knew it justwent out and didn't indicate
that the m that the room was umwas toxic.
And you know, that that becomesa problem, obviously.
So you've got to watch out forsome of the stuff.

SPEAKER_02 (01:13:11):
Yeah.
So yeah, so and then all the waydown to contamination, soil, all
that stuff, man.

SPEAKER_00 (01:13:16):
Yeah, and it's way more proper scientific, it's
super uh difficult to manage.
And each of these rooms could be600,000 to a million dollars of
gross revenue per room.
And if you have a contaminatedcrop, you have to freaking wipe
that whole room, and it alsomake messes up the whole
sequencing.

(01:13:37):
So basically, you'll have afacility that might have eight
different rooms rollingsequentially every week.
One more one room is dropping.
And so that that by the timethat whole eight weeks goes by,
you're just on a continuous flowof product all year round.
Right.
And so if you have one thatfails, it throws out your whole
sequencing and and it becomes aproblem.

SPEAKER_02 (01:13:56):
What about elevation pressure?

SPEAKER_00 (01:13:59):
You know, uh, that's the first time anybody's asked
me about that.

SPEAKER_02 (01:14:03):
Well, the reason I ask is I have a lot of friends
that are growing like they'relike Tahoe guys, they go up to
Tahoe and they're snowboarders,right?
And they're kind of like, andbut they like to grow up there.
And I didn't ask until it justpopped up to my mind while you
were talking, going, I wonder ifanybody I wonder if that's a
thing.

SPEAKER_00 (01:14:16):
So um I could ask that question from our PhD guy,
and they're probably I'm sure hewould have an answer for me.
I don't know uh how muchelevation has to do with it, but
I will tell you that the climatefrom you know Humboldt being one
of the main areas, and we have afacility up there, is relatively
close to sea level.

(01:14:37):
Um I I think that I suspect thatyou're not gonna go too high up.
Um and yeah, and I do know thatsome states uh that you're gonna
that the the the basis is gonnabe higher in that state, but I I
don't have I don't have theanswer.

SPEAKER_02 (01:14:50):
Isn't that kind of crazy though?
Because you know, like you knowcertain plants won't grow based
on elevation.
So because this is such asensitive and everything's so
scientifically designed.

SPEAKER_00 (01:14:59):
It'll probably grow, it's just the yield would be
down.
And so that's part of that.
But I don't have that.
That's one one I haven't I'msure we I can get.

SPEAKER_02 (01:15:06):
Now you're gonna get back in the car and then we have
like, you know, what if Ryanasked me about that?
I wonder if that's a thing, youknow.
But that'd be I I'm now I'mcurious.

SPEAKER_00 (01:15:13):
I'm sure it's a I'm sure it's a thing because
there's less oxygen higher up.
So I think it's a um you know anincongruent uh uh uh uh just the
higher you go, I think the lessproduction you're gonna have.

SPEAKER_02 (01:15:24):
Yeah, I was gonna say I'd say probably what is it,
Joe?

SPEAKER_01 (01:15:26):
It says higher elevations, the atmosphere's
thinner, plants receive more UVBradiation, so therefore more
THC, thicker resin, and strongerturpines.

SPEAKER_02 (01:15:37):
So in essence, higher, so what Joe here, our uh
our video editor here and ourresearch team in the back end
here is saying that in essencewith higher elevation, higher
THC, but does it have does ithave anything to do?
So in essence, it's better, butdoes it does it say anything
about like the speed in whichit's produced too?
Because that would that's a bigdeal.

SPEAKER_01 (01:15:57):
So as elevation increases, the air pressure
drops, oxygen availabilitydecreases, so lower oxygen
equals slower growth.
So it really I guess what it'strying to say is higher
elevation is better for thicker.

SPEAKER_02 (01:16:14):
So ultimately, higher elevation is better.

SPEAKER_00 (01:16:17):
I don't I don't I think I think I think that it
depends.
So for instance, your facility,if it's built, if it's indoor,
if it's indoor, you're not gonnacapture the UV and all that
stuff.
And so now you're just in anelevation that has less oxygen.
So when we're in a closedfacility, we can adjust the
oxygen.
We would be we would beadjusting, we would be adjusting

(01:16:40):
this the CO2.
Um, and theoretically we couldpressurize that as well.
And in fact, just so you know,we do have the facilities
pressurized so that it is um uhnegative pressure to outdoor, so
that we're always pushing anydoor that opens, you pushing out
so that any contaminants soyou're constantly pushing air
in.
And you'd be you'd be um shockedat how easy it is to contaminate

(01:17:00):
the plant.

SPEAKER_02 (01:17:01):
I know.
It's I I hear horror stories.

SPEAKER_00 (01:17:03):
It yeah, every time you enter, you're going through
a foot bath uh and you'rewearing you we have to suit up
and all all kinds of stuffbecause it's it's just microbial
stuff, then becomes it, it juststarts going crazy in in there.

SPEAKER_02 (01:17:16):
It's like the it's a virus, it's like a pandemic.
It's it's a micro pandemic, likea micro pandemic just for
plants.

SPEAKER_00 (01:17:21):
Essential workers was the word I was trying to
work up for before.

SPEAKER_02 (01:17:24):
Okay, so uh to we to sum this up, what would you like
our audience to know and tobuild awareness for your
investment opportunity?
Let's talk about that righthere.
What would you like to pitch?

SPEAKER_00 (01:17:34):
So, you know, Pilores Capital Group is a
specialty asset managerplatform.
And, you know, we're here to umbring an alternative asset uh
type to investors that theyprobably don't have in their
portfolio.

SPEAKER_02 (01:17:51):
Which by the way, alternatives is where it's at
right now.
Yeah.
I mean, the volatility in stocksand stuff like that.
People are stressed out, tiredcalling me all the time, going,
I'm tired of waking up stressedout.

SPEAKER_00 (01:18:00):
And and if you're if you're looking for an
alternative asset class that ispositioned to capture the upside
of a sector, I think that thisis a pretty compelling um
argument.
And, you know, we're not here touh pitch anybody, we're just
here to educate.
And we will be rolling out moreand more series of of
educational videos andinformation that shows these

(01:18:23):
assets.
We do tours of our facilitiesand we we just show you what it
is that we're doing.
And if it's interesting, we'reavailable.

SPEAKER_02 (01:18:31):
I love it.
Cool, right on.
And so you're moving it, youguys are looking.
So you have small familyoffices, you probably have a
bunch of big family officestrying to reach out to you, but
you like more of the you likemore of the smaller um retail
investors that really get anin-depth uh knowledge, right?

SPEAKER_00 (01:18:44):
Yeah, so in reality, the because of the um compliance
risk that um asset managersperceive as being in this
sector, even though we explainedto them there is no uh
prosecution in the sectorbecause it's been defunded, we
actually did bring ininstitutional investors and we
showed them how to get inthrough our uh structured
financial products that we do.

(01:19:05):
But um what we learned over timewas that anytime you go into a
uh uh somebody that has a anattorney in in that decision
group, the attorney is notparticipating in the uh yield.
And so they only have if if theyonly have um, there's no power
in saying yes for them.
And so we try to start withtheir uh compliance people first

(01:19:28):
to show them that um look, uh ifuh BlackRock and some of these
other asset managers are are inthe sector, you're probably okay
too.
Yeah.
And we show them that they'realready in the sector.
And so, but um basically we'verealized that in reality, for
where the sector is at today,that retail is what we prefer to
work with.

(01:19:48):
And as more and it becomesbigger and bigger, we do have
family offices.
Um, we're we're talking with oneof the larger ones that I
mentioned to you last night.
Um, but it's taken almost adecade to get them to where
they're comfortable.
And this is this is a very, verylarge one.
Even in that, they have they areoutside the box thinkers, and
you know, you happen to know whoit is I'm talking about, but so

(01:20:10):
they have that ability to thinkabout that that way.
But but most of them, it's theythey bring it to their um
compliance department, and thecompliance department says,
Well, look, you know, if we hadto take this back, we could lose
all of our banking stuff.
Well, you're not the one thatwould be taking it back, it's
us.
And so we can we can navigateall that, but once you start
hitting those series of no's,it's just it's not a good use of
our time.
So we we focus on the velocityof we're built for retail

(01:20:33):
investors.
That's how the fund wasstructured was to facilitate for
them.
And and to go back, um, thisthis particular fund, the
Polaris Growth Fund.
Is not an income fund, it's agrowth fund.
And the way that we look at itis that as we start to have
liquidity events for each ofthese transactions, you then
take all your chips off thetable, your pro out of portion
of that, what was invested, plusthe upside of the unrealized

(01:20:54):
gain you get at that time.
That yield that you pick upwould be significantly higher
than what an income fund wouldbe.

SPEAKER_02 (01:21:02):
You know what?
I think this is important forpeople to know.
One of the things that one ofthe reasons why a lot of our
investors want to invest with usis because, like, for example,
let's say they go into thesecured income fund.
That's a lending fund, right?
Short-term bridge loans.
It's, you know, all secured byreal estate, no need to trust,
whatever.
The reason why investors likethat is because they know I'm
willing to get my hands dirty,foreclose.
You guys are obviously as well.

(01:21:23):
You guys have a lot moreexperience than I do.
However, you guys are hands-on.
You guys will physically andfocus on repurposing that asset
to save the investors, but alsofigure out a way to make more
money.
That's exactly what's gone onhere.
And that's what's happened withus because we're developers as
well.
They know that, hey, you'regiving me an opportunity if you
foreclose.
Unfortunately, we don't want to.

(01:21:43):
That's not our goal.
We want to just make our yield,get our investors paid, and move
on.
But if we have to get our handsdirty, we're comfortable in that
space and we have the resourcesand knowledge to re repurpose
that asset and exit it andobviously and hopefully make
some money.
So that's a difference betweenfund managers.
And I want a lot of people tounderstand the difference
between most fund managers thathave a strategic business

(01:22:04):
strategy.
And it's usually if something'sgo goes bad, they really don't
have the mechanisms in place orhave an understanding of what
they have to do.
Or experience.
Yeah, I like you said, you know,name a fund manager that's
actually gone through a couple,you know, downturns and what did
they learn from that?
And what what are theyimplementing now?
So the fact that you guys areencumbering businesses along

(01:22:26):
with the license and the realestate, but you guys really lent
on the basis of the real estateis key.
But you nailed it like specialpurpose vehicles, special
purpose assets.
Like it's a it's a it's ascience in essence, literally on
everything you're doing, but ittakes a lot of mental horsepower
and it takes a lot of time toperfect that approach.
I I respect you guys completelybecause I can only imagine.

SPEAKER_00 (01:22:46):
Massive bandwidth.
Yeah.
Um, and you know, we've built ateam.
Um, you know, I I started offearlier of what did we learn?
And we we try to have just thevery, very, very best core team
and then third party everythingout.
So now we have a team of 12 umthat are some of the top uh
analysts and people in thesector that have really uh

(01:23:06):
learned the industry with us andand were part of the whole
process.
So they really understand it andhave have really come up with
some innovative ways to bethinking about things.
And also the other thing I wouldsay it's relationships.
Um Relations, if you don't haverelationships, you're not gonna,
I don't care how good you are.
If you've burnt everybody in theindustry, we wouldn't be able to

(01:23:28):
execute on the opportunity we'redoing right now.

SPEAKER_02 (01:23:29):
Yeah, we talked about it on the way here.

SPEAKER_00 (01:23:31):
Yeah.
So that that is important aswell is to make sure that you're
not burning people in theindustry.
You're you're you're you'redoing what you can to support
the industry.
It's not always gonna work outfor everybody on the
counterparty side, but um, youknow, we're we're doing what we
can to save the assets, save thejobs that we can, and um to work

(01:23:51):
through a difficult time whilethe industry is maturing.

SPEAKER_02 (01:23:54):
And like I said, you know, I love the fact that you
said this.
And this is another thing that Ithink maybe people don't
understand or maybe overlooked.
When you guys, as a fundmanager, have an operator that's
not performing but is willing tocommunicate with you and spill
the beans on what their hurdlesare, you guys step in and help
them.
Where if they're like I do ittoo.
If a borrower comes to me going,right, I'm having a hard time, I

(01:24:16):
had to fire my contractor, can Iget an extension?
You bet, no problem.
We'll give you an extension.
Make sure you come current,whatever the case may be.
But if you just go dark, I haveno other option but to foreclose
on you.
So it's really uh it's it'sreally that relationship between
their lender and the operator isunbelievably important.

SPEAKER_00 (01:24:32):
We actually probably see it we know what's happening
probably better than thembecause we'll start to see it in
their financials.
So they're they're required toprovide quarterly reporting, and
we can start to see the numbersgo down.
And we might say to them, look,your uh labor is is not uh in
what is market to everybodyelse.

(01:24:53):
In fact, we found uh a bad actorthat way.
Um it turned out that he had twofacilities and that he had moved
all of the employee payroll tothe facility that we were
lending on so that the otherfacility that he had better
economics in was free and clear.
And the way that we discoveredthat was from doing our analysis
of what the costs were uh uh perper um employee.

(01:25:16):
And then when we saw it wasn'tadding up, we started we started
using satellite uh photos tolook at the parking lot to see
how many cars were parkingthere.
And uh, we kept calling him andsaying, look, we've got a guy
doing a drive-by today, and thatthere's nobody, we don't see any
cars there.
We weren't telling him how wewere uh inspecting it and said,
Oh, it today was a it was a dayoff, or we we had a power
outage, and so everybody was uhwasn't here today.

(01:25:38):
And we're like, okay, well, whatabout the day before?
Um yeah, well, you know, thatwas a normal work day.
We're like, yeah, no, it wasn't.
Um and so so we stunned once youbreak the credibility with us,
then it's a different you'reconsidered a bad actor.

SPEAKER_02 (01:25:52):
Yeah.

SPEAKER_00 (01:25:52):
And um, you know, people do start doing desperate
things at different times.

SPEAKER_02 (01:25:56):
You just have to get in front of it.

SPEAKER_00 (01:25:57):
You gotta get in front of it.
And so in that particularcircumstance, we immediately put
that in receivership instantlywithout telling him.
And so the next day, doors areon that he's locked out.

SPEAKER_02 (01:26:06):
Wow.
Yeah, that's the way it goes.
Yeah, gotta be honest.
That's the way it goes.
Well, Rob, thank you very much,man.
This was killer.
I think this is gonna be one ofthe most watched and listened to
podcasts I've ever had.
Very sophisticated.
Obviously, you were my mentor.
Everyone always wants to knowwhere the hell I came from.
And I tell them I'm a littlespot in Orange County somewhere.
But I love you, man.
Thank you for being here.
I appreciate you coming outhere, spend the night with me,

(01:26:27):
and just recalibrating andreconnecting with you and
hearing all the stuff about Dan.
Tell Dan, I love him.
I'll call him.
I'll text him.
I'll give him a ring.

SPEAKER_00 (01:26:33):
This is this has been awesome.
Uh, I look forward to comingback and seeing where the
projects are the next time I getfrom.

SPEAKER_02 (01:26:38):
Well, I think some of our uh I think our network's
gonna see more of us.
I'm gonna, I'm gonna, I'm gonnabuild some more awareness for
you guys.
I want my team to reallyconsider um, you know, investing
into you.
You know, I think a lot of otheruh fund managers go, Oh, I don't
want my investors to invest inother people.
Well, that's not that's notnecessary.
I want my investors to win.
I want them to diversify.
I don't want to put all theirhave them put all their eggs in
one basket, right?
So I only I'm I'm I'm only gonnauh represent the best of the

(01:27:01):
best, and that's why you'rehere, man.

SPEAKER_00 (01:27:02):
Right.
Thank you for having me.

SPEAKER_02 (01:27:03):
Cool, thank you, buddy.

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How Real Wealth is Created with Distressed Assets and Shifting Strategies : Ryan Garland & The Mentor Who Changed Everything | Rob Sechrist E38

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.css-14f5ked{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:2;overflow:hidden;}How Real Wealth is Created with Distressed Assets and Shifting Strategies : Ryan Garland & The Mentor Who Changed Everything | Rob Sechrist E38