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May 27, 2022

Q&A with Jason Klarreich: Chief Financial Officer of JW Asset Management

Conversations with the Cannabis 50

The Cannabis 50 celebrates the organizations, individuals, and companies who are working to build a responsible, sustainable, and equitable future for the cannabis, hemp, and related industries. In addition to the 2021 Cannabis 50 Impact Review, we are also sharing interviews with our honorees to help spread their messages of positivity and growth.

JW Asset Management, a registered investment advisor, has $1.1 billion in assets—and roughly $700 million of that is deployed in the cannabis sector. It invests in both public and private companies that possess innovative spirit and entrepreneurial management teams, providing capital and strategic resources to accelerate growth and drive their value. In 2021, JW Asset Management closed on 11 cannabis deals, significantly investing in the space. We sat down with Jason Klarreich, the firm’s Chief Financial Officer, to discuss the JWAM’s entry to cannabis, the biggest theme in capital markets for the space, and the bear market’s effects as we move into 2022.

MGO: How long have you been involved in the cannabis industry? What inspired you to get involved with cannabis?

Jason Klarreich, Chief Financial Officer at JW Asset Management: We began investing in cannabis in Canada when Health Canada implemented the Marijuana for Medical Purposes Regulations. It seemed like a natural extension of our experience and existing investments in the specialty pharmaceutical industry. In 2018, we expanded our footprint by starting to look at transactions in the United States, and now, we focus our efforts almost entirely on the U.S. market. We tend to view vertically integrated operators in limited license states as the ideal opportunities for investment; however, as the industry grows, we’ve broadened our view and now look at deals across all parts of the industry.

Our inspiration to get involved was based on our belief that cannabis was a safe and effective product that could be used for a variety of medical needs. We felt there would be tremendous upside for early investors who had our level of experience evaluating management teams and allocating capital. Although we did expect the legalization of cannabis as an adult-use product would happen, it wasn’t the driving force behind our initial investment thesis and isn’t necessarily driving our continued commitment to the space.

MGO: The cannabis industry saw several trends emerge in 2021. What do you think was the biggest one?

Klarreich: If we’re talking about capital markets, the biggest theme was the correction in cannabis stocks. There was a large drawdown across the cannabis sector that began in February 2021 and continued through year end, hitting almost every company in the space. Although the selloff was significant, it shouldn’t define the industry or obscure some of the big themes we saw play out. We think the continued geographic expansion on a state-by-state basis was a big part of how 2021 should be defined, and that, coupled with the ongoing build-out of larger MSOs, was quite meaningful. Also, while equity markets were weak, the credit market saw strength for most well-run cannabis companies. There was a tremendous amount of capital raised through debt issuance at attractive yields for the larger players.

*MGO: What were some of the biggest obstacles you faced in the industry in 2021? How did you manage and overcome these issues? *

Klarreich: We also saw the unwinding of post-election hope as Congress made little progress on federal legalization as a big obstacle for the sector. Price action as well as new investment were both impacted by the lack of movement on the regulatory front. This along with a pause in the fundamental acceleration as no major new adult-use markets opened in the back half of 2021 were major obstacles that investors grappled with in 2021.

We continue to seek out the best opportunities for future growth—it’s our experience that the best entry points are often made during drawdowns like what the sector experienced in 2021.

*MGO: What were the biggest highlights and most positive changes for JW Asset Management in 2021? *

Klarreich: The cost of debt falling—while equity prices fell, U.S. MSOs raised debt at steadily improving rates, reflecting the improvement in business fundamentals, and increasing investor appetite to have cannabis exposure where possible. Another highlight was strategic M&A activity. Despite regulatory constraints, strategics invested significant capital to obtain a small piece of the U.S. market while MSOs continued to expand their footprints via acquisition

MGO: What should the cannabis industry be focused on in 2022—and beyond—to keep it moving forward in a positive way?

Klarreich: Something we need to focus on is the continuation of long-term trends of illicit market conversion and social normalization. State-specific growth is a hot topic. Think about New York, New Jersey, Connecticut, Pennsylvania and Virginia with adult-use on the way, and Ohio , Missouri, and Minnesota likely to experience robust medical growth in the next 2-4 years. We also hope that there will be continued improvement in manufacturing and cultivation so that safety and compliance are front and center, building consumer confidence across the different product segments within cannabis.

MGO: How do you think the cannabis industry will continue to evolve in 2022? What are you personally most excited about?

Klarreich: We believe that the cannabis bear market is largely a function of unwinding an overextended rally built on unrealistic expectations of rapid federal change, in a sector that still lacks institutional liquidity. Growth industries and stocks typically undergo many significant corrections even on the way to oversized long-term returns. We see cannabis as no different—if anything, the fluctuations are exacerbated by the absence of institutional capital.

Compared to the cannabis bear market from spring 2019 to spring 2020, today’s leading U.S. cannabis companies are far better capitalized and have built profitable, sustainable businesses that require less access, if any, to external capital. We feel that 2022 will represent an excellent entry point for new investors!

MGO: Who else in the cannabis industry inspires you by making a positive impact?

Klarreich: As an operator, Cookies is a big inspiration. It’s one of the most sought-after cannabis brands and a company that makes a point to advocate for those impacted by the War on Drugs. Some of its social impact program initiatives (why we are so inspired!) include a restorative justice campaign with Amplifier; a partnership with the Hood Incubator to create a more equitable future in cannabis; and voting encouragement via Smoke the Vote and two visionary founders, growth expert Jai and entrepreneur Berner.

We also enjoy working with and following everything that Rosie Mattio of MATTIO Communications is doing. Her firm positively impacts so many companies within the industry, and her attitude and reputation have had a tremendous influence on the space.

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