Contrarian Investor Codie Sanchez Is a New Breed of Cannabis Disruptor

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Codie Sanchez is on a mission. Or maybe a half-dozen missions, and most of them are intertwined with cannabis, a plant she started to explore and invest in about five years ago in, of all places, Dallas.

While the majority of venture capital and angel investors are staying on the sidelines until cannabis is legal on the federal level, Sanchez and her colleagues at Entourage Effect Capital (formerly Cresco Capital Partners) are going all in. To date, they have invested more than $100 million across more than forty companies. Formerly an entrepreneur, venture capitalist, writer, and angel investor, she is now a managing director and partner at Entourage, as well as a board member at The Arcview Group, Magma Partners Venture Fund, and Texans for Veterans.

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Like any millennial worth their salt in today’s business world, Sanchez also is a pro on the social media front. She uses Instagram, where she enjoys almost 40,000 followers, to promote cannabis events and speaking engagements. She also shares motivational memes and captions alongside snaps of her travels and free-spirited, hard-driving lifestyle: mountain climbing, surfing, jiu jitsu, boxing, shooting guns and bows, and for good measure, goat yoga.

More notable than her popularity on Instagram, though, is the way Sanchez connects with cannabis operators of all stripes and the upper echelon of investors. By bridging the gap between the two worlds, she quickly became an influential voice in an industry that often is wary of newbies and remains an enigma to most investors.

Creating generational wealth

Unlike other investors, Sanchez began her career as a
journalist. One of her first assignments was a series about human trafficking
and the struggle to survive along the U.S.-Mexico border. Despite winning a
Robert F. Kennedy journalism award and grants from the Buffet Foundation, she
reasoned writing wouldn’t change injustice. Money, on the other hand, can move
mountains. In cannabis, Sanchez sees an opportunity to build an industry that
has the potential to change the dynamics of cultural, political, and financial
issues on a global scale. 

“I’ve never seen anything like this industry, and I don’t
say that based on just my experience,” she said. “The fascinating thing to me
about cannabis is there is a melding of about five things happening at once.”

She listed the factors that make cannabis a unique,
mesmerizing, and unpredictable industry: pent up demand for a currently illicit
substance people have used for centuries, hyper-regulation of a new industry, a
rapidly growing market where consolidation and exits are happening early and
often, an evolving consumer base that includes an increasing number of seniors,
and financial engineering designed to help the industry scale quickly without
the help of traditional investment and banking resources.

Journalism was a fortuitous start to her career in business
and finance, she said, because the skills she honed researching, analyzing, and
interviewing people have helped her understand investors, business models, and
the ever-shifting dynamics in a complicated, fast-moving commercial space. A
voracious reader and student of history, she believes cannabis represents a
once-in-a-lifetime investment opportunity.

“Those five factors got me interested in investing,” she
said. “Put that on top of the fact we can do good with this and maybe eliminate
opioid use. It’s why we call this a generational-wealth-creation event. My
opinion is that everyone who can have investments in cannabis should, to your
right risk tolerance. You are crazy to miss out on how this industry will
integrate into our lives overall.”

While some of these factors make cannabis a compelling
sector in which to operate and invest, some investors are wary of participating
in a heavily regulated industry in constant flux with an abundance of
inexperienced operators at the wheel. When Sanchez discusses the growing pains
in the industry, she embraces the challenges and sees an opportunity to be a
thought leader and influencer.

“There are a lot of conversations that need to happen in
this industry, because there are really not many companies that are not
startups,” she said. “Even if they’ve been around for a long time, given how
constrained they have been for capital and the relatively small size of their
revenue, these companies are still in startup stage.”

For Sanchez and her partners, at that point structure is
all-important.

“For any company that has traction and revenue, it’s about
how they structure exits, how they structure acquisitions, and how they value
themselves,” she said. “I have seen a lot of these companies get burned by
putting ridiculous valuations on themselves, and then they go out to raise
their next round, the market gets squishy, and that means they aren’t able to
raise at a higher level and they have to take a down route.”

Finding examples of companies that grew too big, too fast
and ran out of cash along the way is easy. But the situation can be avoided,
according to Sanchez, if leadership maintains a sound financial strategy that
accounts for potential dips in the market and other contingencies.

“People don’t care about how you are performing as much as
the macro movements in the market overall,” she said. “If I had one [piece of
advice] for entrepreneurs about how they can keep control of their company, it
would be the way you keep control is to make sure you always have the lifeblood
of capital available to you. Don’t do things too early, because the market will
punish you for the rest of your existence if you do that.”

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mg Magazine (November, 2019); cover photography by John Taylor

The wild west, then and now

A quote on Sanchez’s personal website stands out: “The world
wasn’t created or changed by the docile or the malleable. It was beaten into
submission by the subversives, the dissidents crazy enough to try to transform
it.” The words belong to her, and they sum up the philosophy of a woman whose
family migrated from Spain during the Spanish Civil War of the 1930s and made
their way to a rural area in northern Arizona. There, they fermented their own
wine, hunted for food, and worked hard to build a new life in a country full of
promise.

“It was a bit of the wild west [when I was] growing up, and
my family had an attitude of individualism and [seizing] the opportunities here
in the U.S.,” she said, noting her family encouraged her to think tough and
work hard from an early age. “The stuff we focus on every day, like a meeting
or getting fired, or even the 2008 financial crisis, none of those things will
kill you unless you let them. So that attitude has served me well. I think the
physical push and the little bit of wild-west attitude early on was the best
gift I was ever given.”

After earning a Master of Business Administration degree
from Georgetown University and a Ph.D. from Fundação Getúlio Vargas in Brazil,
Sanchez set out to conquer the financial world. She led First Trust’s Latin
America investment business and held positions at Goldman Sachs, State Street,
and Vanguard. Along the way, she learned how to negotiate with the sharks and
now passes along some of her wisdom to others. Throughout her career, Sanchez
has balanced her professional ambitions with the social and political causes
closest to her heart: helping veterans and motivating women, Latinos, and other
minorities to aim higher with their job aspirations, investments, and life
goals. A post on her website offers some blunt advice for negotiating salaries:
“Negotiate like a girl, because you can get what you want. You will hands-down
never get what you don’t ask for. This is especially true for women and
minorities. There is much research that proves we don’t negotiate enough.”

Sanchez said Jack Mackay’s Conscious Capitalism: Liberating the Heroic Spirit of Business exerted a powerful influence on her early career, encouraging her to help create a more diverse and equitable business world. She sees the cannabis industry as an ideal platform to champion her views. The increasing number of B Corporations—for-profit companies that rate highly on B Lab’s scale for social and environmental performance—is a sign corporations are beginning to understand the importance of giving back to communities, she said. She advocates for investment in women-led startups through Plum Alley, WAVE, and The Vinetta Project.

“With every business I’ve run, I’ve made a point of hiring
at least 50 percent minorities across the spectrum, whether that’s women,
ethnic minorities, or people from different countries. And I don’t think that’s
changed at Entourage,” she said. “We were really quiet before, and our first
fund was very private; our second fund was more open. But now we are talking to
our partners about diversifying the investors, and I am pushing to get more
minorities and women and want a bigger push for Fund 3.

“I think we’re one of the only firms with female partners in
the cannabis space, and this has been a big push for me since I joined,” she
added. “There are a lot of ways to make money in this world, and at the end of
the day you want to feel like we are not okay with process without a lot of
purpose behind it.”

Giving people of color a stake in the industry, from top to
bottom, is an important part of her mission. So far, she is not impressed with
efforts to create social equity. Not one to mince words, she had some choice
ones for the politicians and regulators who crafted the first round of social
justice programs across the U.S.

“What a lot of regulators have done with social justice
reform in cannabis is absolutely ludicrous,” she said. “In California, for
instance, instead of giving a percentage of revenue for jobs and infrastructure
and training programs, they want to have owners from an ethnically
underprivileged background in certain area codes. So, they’re giving
opportunities to just one individual instead of a community overall. They are
also just giving them money without any learning or knowledge behind it.
Unfortunately, I think most regulators are using cannabis as a platform for
political games.”

A newbie with skin in the game

In 2014, as she was raising capital in Dallas and investing
in her first fund, Sanchez acknowledges she was a newbie in terms of knowledge.
But that didn’t stop her from diving right in. “We knew nothing, but the best
way to learn about an industry is to put your money where your mouth is,” she
said. “It’s always more compelling for me and I learn more quickly with skin in
the game.”

A few years later, she became interested in post-traumatic
stress disorder, from a non-profit perspective, and lobbied the government to
allow veterans access to medicinal cannabis. She soon invested in several
companies and began identifying key players across the country. As she dug
deeper into the investment side of the cannabis industry, Sanchez noticed
traditional investors often let their egos get in the way of deals.

“One thing people forget about in finance is that maybe you
have had success and raised a ton of money in your career, but sometimes there
comes a little bit of ego with that,” she said. “There are a lot of managers
who come right out and say, ‘You are lucky to be with us,’ and they don’t show
any humanity but just offer up a number. What they forget is people are not
rational creatures. The only way we’ve survived all these millennia is through
figuring out who to trust, what to trust, and what not to trust.”

While Sanchez considers herself a tough negotiator, she also
respects the work cannabis entrepreneurs have put into their businesses and
what a struggle surviving under constantly shifting regulations has been. With
that in mind, she tries to make a personal connection when she meets with
investors and business owners.

“Our success in the past has something to do with our
returns thus far, but it has much more to do with the fact there is nothing I
take more seriously than trust,” she said. “So, if you give me your money, I
will take it and treat it like my own and will hopefully give you a return you
won’t have to work for. I will do the work for you.”

Codie-Sanchez-Standing-mg-magazine-cannabis-news

The T word

Sanchez is equally outspoken about where she’s not interested in investing.

“It’s always good to cut out the noise of what we’re not
interested in, so one thing is pure cultivation plays without anything else
built around them,” she said. “The unique ability to create a product afterward
makes it interesting. That’s pretty standard, because it’s farming, after all,
and that won’t always be the most successful area.”

She also is skeptical of companies that want to build a
business around “licensing land-grabs.” Those entities are putting an unrealistic
value on the worth of specific licenses moving forward, she said. She’s also
cautious about holding companies that are “rolling up varying businesses in one
holding company or relying on [reverse takeovers].

“I do not like to invest in companies that don’t have a
sustainable long-term difference, so I’m really not interested in the companies
with thirty-day, sixty-day, or ninety-day exit plans,” she continued. “Usually,
the get-rich-quick schemes are quite the opposite [of getting rich quickly], so
I stay out of any opportunity that even smells like that.”

As for opportunities on the horizon, Sanchez pointed to
important segments of the industry that haven’t been fully formed or
formalized. “The areas I really like are multi-fold,” she said. “I’m really
interested in who will figure out how to socialize cannabis in a similar vein
to alcohol. I think the key to a lot of these companies is if they can get us
not to change our habits very much but to substitute one thing for another
thing—to create really incredible drinks at reasonable price points that won’t
get you crazy-inebriated and where you can have an experience like sitting down
with a glass of wine. I haven’t found a company I like, but there will be one
eventually.”

She’s also looking for an investment in lab testing. Varying
standards from state to state and a lack of formalized standards within states
creates a void in credibility and consistency in a critical part of the supply
chain. The situation needs to be addressed immediately, according to Sanchez.

“I would love to find a really strong grouping of
lab-testing companies,” she said. “What we’ve seen thus far is a lot of lab
companies out there, but they are riddled with issues. Testing is often
inconsistent, and there is fraud. Nobody has put it all together to be an
acquisition target. It’s a core part of the industry that’s really missing
right now.”

Investment potential abroad is interesting, she said. She
sees plenty of risk, but also windows of opportunity. In Latin America, she is
exploring investment in countries with stable governments and “consistent
economic regimes,” such as Chile and Colombia.

“There’s a reason Colombia and South America dominate flower
production, because the growing conditions are ideal and you don’t need all the
bells and whistles you have in most of the U.S.” she said. “Is it really
reasonable that we’re building hundreds of thousands of square feet of
warehouses with light bulbs to grow this sunshine-seeking plant in Canada in a
tundra? I think, long-term, we’re going to see a lot of growing in Latin
America, as we should.”

Even in somewhat stable countries, she explained, it’s
important to have local operators who understand the government and, hopefully,
are tied into it somehow. “I get nervous about Latin America, because the
governments get in their own way—even in Mexico, which has every reason to get
on board to legalize and for taking taxes back into the economy and fighting
the narco regime,” she said. “There are a lot of opportunities there, but if you
think the U.S. and Canada are volatile, hold on to your seatbelts because Latin
America is an entirely different thing. There are a lot of firms going in
there, and they don’t have the local talent and knowledge.”

While Sanchez keeps her eyes on the opportunities abroad,
she is plenty busy at home. She recently took on a board role at The Arcview
Group, where she focuses on helping the company evolve into a unique resource
for the industry.

“We think Arcview is really important to this industry,” she
said. “Founders Steve [DeAngelo] and Troy [Dayton] have been incredible
advocates but haven’t blown it up and grown like they want to yet. They haven’t
created the future Y combinator, where the angel list meets the premier
cannabis event company, all integrated into one. If they do that, we can fund
companies from seed to [initial public offering] and will be the only ones to
be able to do that. It will be lucrative for our investors and also the
industry.”

Investors are beginning to learn about the unique risks,
challenges, and opportunities the cannabis industry presents. With no
traditional metrics to rely on, it’s an abstract science, to say the least.
Sanchez understands this all too well and communicates that message in every
meeting she takes.

“When I sit down across from investors, it’s the
transference of trust we try to show them—our career, our track record, and how
much I personally have invested,” she said. “Believe in this story about the
cannabis industry as a force that cannot be stopped. That story doesn’t know
any gender or age.”