Alan Brochstein, CFA: 420 Investor
And here we are to finally help you answer the elusive question: how do we capitalize on the cannabis industry? We know there is great financial profit, that the industry is inevitably growing, that there are major players stepping into the field, that the potential is there; but how do we navigate? Let us introduce you to the man who will be your most trusted resource, Alan Brochstein, founder of 420 Investor. If there was anyone we’d want to start this endeavor with, it’d be him. He’s well-educated, well-researched, and his services are invaluable to taking a step in the right direction. “X” marks the spot and it all starts right here with our interview with Alan.
What was the deciding factor for you to join this particular industry?
After six months of investigating the industry and sharing my thoughts publicly on Seeking Alpha, a financial blog, I decided, just days after Sanjay Gupta’s famous reversal of his negative views on medical marijuana, to start a subscription-based service to help investors assess publicly-traded stocks in the space. I had been hoping that a major thought leader would embrace the potential medicinal benefits of cannabis. We launched 420 Investor a month later on September 15, 2013. I embarked on this journey because I felt I could play a unique role given my background to help investors sort through the ‘Wild West’ mentality that even today dominates the trading of these stocks, which are predominantly penny stocks.
What were you doing before?
I began working on Wall Street in 1986. Most recently, I was self-employed as an independent research analyst providing research and consulting to small investment advisors as well as to a firm that focused on assessing management capabilities, incentives and governance. Previously, I had worked for investment management firms from 1992 through 2006. Once I was on my own, I began contributing to Seeking Alpha, where I have shared over 600 articles since 2007. I have always believed that individuals willing to invest their time can be better served by making their own investment decisions rather than paying a broker a transaction fee or a percentage of assets, and I launched some services beginning in 2008 to help guide those choosing to invest on their own but looking for objective advice. Earlier this year, I decided to focus 100% of my time on the cannabis industry.
Tell us about the point in time you realized the coming of the green rush?
I have favored marijuana legalization since I was 15 (1980), well before I had ever consumed it and when I was a volunteer in the Libertarian Party. I was aware of the votes in Colorado and Washington in late 2012, but it wasn’t until early 2013 that I learned that there were stocks trading. My initial review suggested that the companies were real stinkers and that investors were paying insane prices. I quickly learned that there were no investment professionals focused on this opportunity. The more I researched, the more I learned about the potential medicinal benefits of cannabis. Sadly, due to our federal policy, our academics haven’t been able to conduct the kind of medical studies that are necessary, but I am hopeful that rescheduling by the DEA within the next few years will allow these studies to take place. To me, the ‘green rush’ is a triple-win, with benefits for society, entrepreneurs and consumers. Society gains as we save billions on prosecution and incarceration, receive taxes, and potentially displace expensive pharmaceuticals and toxic alcohol. Entrepreneurs have the opportunity to gain as a new legal industry is built. Consumers should end up with a higher quality, safer, and more standardized product. It’s this alignment of pragmatic reasons with an easy-to-embrace philosophical choice for most Americans that suggests to me a revolution is ahead for this industry.
The more I researched, the more I learned about the potential medicinal benefits of cannabis.
Right now, where are you guiding your passion and energy towards?
My goals are to elevate this industry and to help investors who see the opportunities ahead in cannabis to make intelligent choices. Our community focuses on finding companies that are transparent and that employ shareholder-friendly governance practices and avoiding the many opportunists. 420 Investor has succeeded beyond my wildest expectations and it has become its own 24/7 community rather than a traditional “newsletter” as it was originally intended. While I continue to devote the bulk of my time to it, I have also begun to address an additional opportunity. There are so many entrepreneurs seeking capital who are forced, due to the federal illegality, to rely on friends and family rather than being able to turn to banks or Wall Street to fund their ventures. At the same time, many individuals would like to invest directly in the industry, but it is very difficult to find potential opportunities. We launched 420 Funders as a platform to connect cannabis companies with accredited investors, helping to solve what I see as a major potential barrier to success for the industry.
Describe your work ethic in one word.
Integrity.
Tell us about a time in your career that didn’t go as planned and what you did about that. How did you handle it?
My career had a shocking jolt early on. I was just 23 when I found information suggesting that my boss had violated company rules and potentially security laws as well. I turned him in, not knowing how far up the supervisory chain the violations might go – this was before whistle-blowing was viewed positively. I wasn’t sure how this would play out and feared it would cost me my own job for not being a “team player.” I ended up taking a leave of absence from my six-figure job while things were sorted out, but this proved to be a great decision, as I ended up having time to spend courting my eventual wife. Later in my career, I walked away from another situation that I felt wasn’t right.
What book have you read that you’ve been inspired by? Any particular read we should put on our list?
As someone who has focused the past 15 years on studying what separates good companies from bad ones, I have learned a great deal from Clayton Christensen, a Harvard professor known best for coining the term “disruptive innovation”. I have read most of his books – starting with the first one, The Innovator’s Dilemma. More recently, I read Driving to Perfection by Brian Fielkow, a personal friend of mine who shares some brilliant insight on building an ethical corporate culture.
Tell us about an esteemed achievement of yours.
I toured Denver in mid-January because I wanted to see first-hand what was going on at ground-zero. Several subscribers learned of my plans to visit and joined me for what ended up being an incredible few days of investigation that also included a last-minute dinner for subscribers from the area as well as some of my industry contacts. The experience was so great that I told my partners at Marketfy, which provides the technology, customer support, and billing for 420 Investor that we needed to have an industry conference. I am not sure how we pulled it off, but Marketfy hosted the first “WeedStock Conference” in late June at the Westin in Denver and it was a resounding success for the dozens of companies and hundreds of investors who attended. For me, it was a great week, as I also spoke on a panel at the National Cannabis Industry Association’s conference that preceded the WeedStock Conference.
What’s the best advice you’ve ever gotten?
I spent seven years building a successful investment research and consulting business, but I was finding it very difficult to keep up with my responsibilities due to the demands on my time from 420 Investor. Kyle Bazzy, president of Marketfy, told me that I needed to focus 100% of my time on 420 Investor, and he was right. It was very difficult to walk away from helping my customers who had been with me for years and to step outside my comfort zone, but it was a bold move that I will never regret. I would suggest to anyone that when a once-in-a-lifetime opportunity presents itself to you, seize it.
What is the most important thing for us to know now about the legal marijuana industry?
While many think that we already know the best way to do things when it comes to growing and selling cannabis, I would suggest that the unshackling of the industry will lead to tremendous innovation. We should expect as the cannabis industry becomes legal to see all sorts of bright people from other industries enter and apply business processes that so far haven’t mattered to an industry operating in the shadows. There will be intense competition to produce a high-quality product at a low price in an environment that demands regulatory compliance.
We should expect as the cannabis industry becomes legal to see all sorts of bright people from other industries enter and apply business processes that so far haven’t mattered to an industry operating in the shadows.
If we are sitting across from each other a year from now, how will our conversation about the ‘green rush’ be going?
I expect when we are reconvening in a year that I will be able to point to much progress for the industry in terms of operational results and access to capital. We will have more institutional investors in the market, and individuals will have much better choices than they do presently. Marijuana stocks won’t be relegated solely to the penny stock arena, and we will see magazines like Forbes, Fortune, and Bloomberg Businessweek documenting the growth and the potential for the industry.
