Erich Mauff | Founder, Jushi Holdings

September 9, 2020
Erich Mauff brings financial and managerial experience to his role as Founder and Co-President of Jushi. Erich spent over 20 years at Deutsche Bank, first heading Capital Markets & Treasury Solutions group, then serving as Managing Director and Vice Chairman of Corporate Finance North America.
Erich’s fierce work ethic extends beyond even his executive experience—in 1992, Erich competed in the Olympics for South Africa’s Men’s rowing team. Erich earned his BA from Brown University.

What compelled you to build Jushi and take a new approach to the cannabis space as a whole?

After spending almost twenty years in finance, I was fortunate enough to be one of four founders of Jushi. When one thinks of a long career in finance, one would not easily consider cannabis as their next business. However, cannabis is an incredibly exciting industry that fits very well with my financial background. I like to think of cannabis as a four-pillared industry.

The first pillar is capital, both personal and third-party financing, to capitalize a start-up. Due to all the federal restrictions, access to capital is critical and raising capital is one of my core competencies. I knew that I could bring that expertise to the cannabis industry. In fact, to date we have raised over $220 million, of which founders and insiders have contributed almost $50 million themselves. We are unique in cannabis, with significant personal capital contributed to the business. Our investors take great comfort, knowing we are all right-way risked, and our management team will make prudent capital decisions.

The second pillar is M&A. M&A, risk management, data-driven decision making, and capital allocation are all areas that Jushi CEO, Chairman and Co-Founder, James (“Jim”) Cacioppo, and our team are experienced in. We knew we could bring these disciplines to our M&A process and make sure that we acquired the best assets, with solid businesses at fair prices.

The third pillar is building and scaling a business. Our core senior team have all built successful companies in prior lives, and we knew we could bring our collective skillset, refined over decades on Wall and Main Street to the cannabis space. Jim, our CEO, has decades of experience as a distressed specialist and financial sponsor. We have benefited from Jim’s unique skillset especially l navigating these turbulent markets.

The fourth final pillar is partnering with skilled cannabis industry experts. Through the acquisition of The Clinic out of Colorado, we added a fantastic, award-winning team to build-out our operations and brands.

By cementing our company’s foundation with these four pillars, I believe we have built an incredible company that marries world-class capital allocation and financial discipline with best-in-class cannabis operational expertise and capabilities.

Your founding team has a deep history in the hedge fund business. What lessons from that world are most relevant to what you are building now with Jushi?

When you compare and contrast cannabis to hedge funds and structured credit, there are three critical aspects that the industries share when making any type of deal: 1. Understanding the risk profiles; 2. Ability to raise capital, allocate capital prudently and have credibility; and 3. Properly structuring deals. These are even more essential in cannabis where businesses are at the extremes of these situations.

One, the ability to understand the risk profile around a deal or any trade is critical. You do not want to participate in a deal in which you are overextending your balance sheet or betting too much of the company on one particular area or one particular state. That is a discipline you learn in finance, which can be translated into a company like Jushi in the new, complex, and highly regulated cannabis sector.

Number two is the ability to raise capital and gain credibility with investors. When raising capital, you need to demonstrate that you will be a good steward of their investment, that they and their capital will be treated in a very rigorous manner such that it's not squandered. Unfortunately, we have seen many other cannabis companies act unprofessionally and irresponsibly with investors’ funds.

Number three is the ability to complete well-structured, thoughtful, and carefully documented M&A deals. This is especially important in the cannabis industry since our industry does not have  access to many of the legal systems you would usually use for dispute resolution or Chapter 11 bankruptcy protection. Our long history of dealing with difficult situations and bankruptcies has proven to be extremely helpful.

Tell us about some of the deals you guys have done so far and why you have focused heavily on retail locations?

We follow a retail-first strategy, meaning we have always thought that retail is a top priority. We believe retail is a critical component of any strategy in any state, allowing us to build out a commanding footprint. Take Pennsylvania, where we have the collective rights that allow us to build fifteen retail locations. The amount of capital required to open a store, although high, is nothing like what is needed for a grower-processor. We always viewed retail as a low-risk strategy when entering a new market.

However, as you better understand a market and start to build your footprint, as we have in Pennsylvania, you see opportunities arise. We expected that out of the 25 grower processors in Pennsylvania, half of them would not be particularly successful, thus allowing us ample opportunities to find a good fit for a future acquisition.

We announced the closing of a grower-processor acquisition in Pennsylvania in August, which we believe is a fantastic deal for Jushi at a very attractive price for our shareholders. It is going to solidify Jushi’s leadership position in a market where we have fifteen retail stores and now a grower-processor. The grower-processor facility is 90,000 square feet with approximately 45,000 square feet of high-quality, indoor cultivation. We can further upsize the indoor cultivation by an additional 25,000 square feet, bringing the total to 70,000 square feet. We always say we are retail-first, but we will also look to vertically integrate in states where it fits our strategy.

What do you think most investors aren’t aware of when it comes to the unique value Jushi is building?

We bring a unique perspective to the cannabis industry. Initially, we noticed that investors were far more focused on the size and breadth of our footprint and less on management, while to us, management is what matters. We believe that managers track records and building a world-class team of not just cannabis experts, but also risk managers and financial professionals, is extremely important. With that philosophy, we have an M&A team with deep capabilities and experience in these types of deals. Also, we have a fantastic CFO and a Fortune 100 accounting department, as well as our outstanding legal team.

We also took deep, concentrated bets on markets that we thought would be long-term winners as opposed to creating a wide, shallow footprint across multiple markets. It seems that it is now beginning to resonate with investors.

Once we built a world-class operating company to manage our assets, we were in a prime position to buy distressed assets, which is exactly what we did with the Pennsylvania grower-processor acquisition. This was a company that required financing and needed to sell some of its assets to finance its shortfall. It was a fantastic fit for Jushi, and we continue to believe that Jushi's expertise will further bolster that asset to reach top levels of productivity, quality, efficiency, and proficiency.

When I look through the cannabis space, I see that investors are not focused on the quality of management teams and their ability to buy and allocate capital carefully in what is a very dynamic, very volatile business. People also do not appreciate how much effort we have put into building a world-class team. Having the right people in the right jobs is so important in any business – especially one that is continuing to scale. However, tides seem to be turning and investors are now beginning to realize that.

Why has Jushi made so many investments in the US and what advantages do you see there?

The world's largest cannabis marketplace is the U.S., and we are only in six states. We are focused on the biggest, broadest market in the world. Even within the U.S., we have only focused on three core markets (Virginia, Pennsylvania, and Illinois) and three developing markets (Ohio, Nevada, and California). In our view, it is difficult to attack more than that and get it right.

Looking ahead, where do you see Jushi evolving and what are you most excited about for the growth of the business?

Without a doubt, the most exciting part of Jushi right now is our future growth in the markets in which we currently operate. In Virginia, which we view as “The Sleeping Giant,” we have received approval from the Virginia Board of Pharmacy to commence vertically integrated operations for the cultivation, manufacturing, and sale of medical cannabis. We expect to become operational by the fall and begin dispensing products by the end of the year. There is a lot of work to be done in Virginia with another five retail locations that we still need to be built-out. We are thrilled to have eight stores currently open in Pennsylvania, taking the total from eight to fifteen by the middle of 2021 as well as integrating the acquisition of the Pennsylvania grower-processor into our business. We are also excited to open the additional two stores in Illinois (one in Sauget, IL, which is just south of East St. Louis, and the other is in Bloomington-Normal in the center of IL). The addition of these two stores will take us to a total of four stores by the end of 2020. We believe Illinois is probably the best cannabis state in the country at the moment. I would like to note that our two operational stores in Sauget and Bloomington-Normal are among the best performing stores in the state.

In terms of our developmental markets, in Ohio our extraction and processing facility will come online in early 2021. In Nevada, our cultivation facility is producing high quality flower and we are launching in-house pre-rolls and branded flower all under The Bank. In California, we expect to open our first retail store in Santa Barbara by late September. We intend to move forward in the merit-based application process as one of three selected applicants for a storefront retail and ancillary delivery permit in Culver City, California. Overall, we are aiming to build out a well-balanced portfolio in some of the best medical and adult-use markets in the U.S.

As you may be able to tell, the single most exciting part about Jushi is getting all our stores operational. It is also seeing all of our assets move into the revenue-producing phase and BEYOND/HELLO™, our retail brand, really beginning to elevate itself above competitors in the sense of better operations and design. We love the feel of our stores and have a passionate retail team, not to mention some of the best cultivators and extractors in the market. They are bringing some of the best IP for products out of Colorado to our patients and consumers in our markets.

Another exhilarating part of Jushi is that we are continuously looking for assets to add to our portfolio at attractive prices. As professionals with extensive experience working with distressed assets, we have a lot of opportunities at Jushi to build out our portfolio.

Third, it would be hard not to say we are eagerly anticipating the upcoming national and local elections. I am not going to try to predict the outcome, but a democratic sweep will be positive for the cannabis industry. I also think states with COVID related budget deficits are going to look to cannabis to generate service sector jobs, infrastructure investment, and taxable revenue. Overall, I see fewer headwinds and more tailwinds for cannabis, which would be a reprieve from the last two years. The turnout could be a real catalyst for the industry as a whole.

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