Article

… letter from CEO

October 12, 2018

I am proud and humbled to be in this position – CEO of First Jersey Cannabis Corporation -- to be in the right spot at the right time.

 

 
Being a leader is not about ability, it’s about responsibility; not just responsible for making good decisions, you must be accountable for making bad ones. You must be ready to make difficult choices.  I know the cannabis industry, the dynamics and the issues related to it. Most CEOs are financial or legal types having limited hands-on knowledge or experience.  Even though I considered my prior activities as a hobby, I spent over 12 years conducting research, analyzing the subtleties of the marketplace, the legal hurdles, consumer temperament, and concluded --- it’s not building facilities to grow cannabis. 

As a commodity, cannabis is subject to market undercurrents with unit prices based exclusively on supply and demand. My focus is on branding and singular product recognition.   Marijuana has become a commodity crop. Overproduction will keep prices low for commodity traders and processors who are the real beneficiaries. We plan to be a major processor with branded products. emphasis added.


Companies like Tilray Inc. (TLRY), Aurora Cannabis Inc. (ACBFF), Canopy Growth Corporation (CGC), have unrealistic market capitalization in the billion dollars, which would require at least seven years to be fundamentally sound.  These public companies are committing hundreds of million dollars on facility expanding, merely to “grow a commodity.” My responsibility is bottom line profits.  Earnings per share are my primary yardstick.  At 51 years old, I have the time, temperament and prudence, to hopefully mold, First Jersey Cannabis Corporation into a profitable enterprise.    
The emerging cannabis industry offers a once-in-a-lifetime-opportunity for anyone to seize the moment. My mission is to create a profitable company that is objectively centric to one commodity – cannabis: The 21st century equivalent to 16th-century tobacco. The lowly tobacco plant that spawned a $90 trillion industry and consumed in every corner of the world. I estimate that 31% of individual world fortunes are based directly and indirectly on tobacco. Today, cannabis is on the same flight path, and the starting point is now. Cannabis is in the right place at the right time for us to succeed.  
For decades the possession and use of cannabis aka marijuana were treated as a crime. Today, states legislators have awakened to a new wave of thinking.  Marijuana is legal for medical and recreational use in 31 states and the District of Columbia.  Their political courage to legalize it have seen tax rolls bloom and have created thousands of jobs.  The push to federal legalization is real and will happen.
Canada has set October 17, 2018, as the date to make cannabis legal on a national basis.  Their move to make recreational marijuana legal is transformative and represents a wholesale shift to commercial use, departing from the failed model of Prohibition. Retail cannabis outlets will open in the provinces with online mail delivery systems as the primary method of distribution.  I believe their business model to become the worldwide standard.  
Within five years, the federal  government will follow Canada’s lead as more and more states recognize the monetary benefits and limited downside. On a nationalized basis, cannabis could be a $175 trillion industry, and taxed income of more than $50 trillion pouring into federal, states and city coffers annually. The emerging recreational cannabis market is in its infancy with unlimited potential.   This trend will continue and whoever endeavors to ride the economic wave will reap untold wealth.
Navigating the newness of cannabis as a primary investment vehicle is not risk-averse. Federal law does not exist to make it legal on a nationwide basis. States that legalized the commodity for recreational use are not flexible enough to circumvent federal roadblocks. Cannabis, as a viable commercial product, cannot transition to a mainstream business sector until existing Federal tax laws are changed or appealed. The issue is Section 280E of the Internal Revenue Service Code. This code deals with businesses that are associated with “trafficking” substances under Schedule I and Schedule II of the Controlled Substance Act.  Since cannabis remains listed as a Schedule I substance at the federal level, the IRS applies Section 280E to most state-legal cannabis companies, preventing them from deducting normal business expenses from their total income. The IRS has determined Section 280E applies to licensed, regulated cannabis businesses acting in full compliance with state marijuana laws and federal guidelines.
Near-term nationwide legalization of cannabis doesn’t offer a straight path. The only remedy to fully embrace the  potential of cannabis in the current political environment is with  a “scaffolding approach.” This would allow the design of a flexible business vehicle, which anticipates the eventual conclusion of cannabis as a recreational product, sanctioned by federal law.  Thus, scaffolding is the means to  'reinvent" the business when changing circumstances become apparent.
Currently, the cannabis industry is multidimensional and impossible to create a viable, all conclusive business model until the issues of taxation and the role the federal government is conclusively determined. The alternative is to find niches with cannabis-related products and services. The need at present is to identify business activities and cash in on states ’moves to legalize marijuana from the outside: Instead of focusing on marijuana as a crop, identify businesses relating to the marijuana user. Success can be realized without touching a single gram.  As every new state gets involved, there are different wrinkles; businesses haven’t been able to be a national player because each market is different. As I said, the market is so young; it’s not able to identify or apply a typical business model. It leads to opportunities, without being “close to the plant.” The closer a business is to the actual marijuana, the more regulations.

At present, it is a cutthroat process to obtain licenses. However, our company has taken the conventional route to obtain cannabis licensees in New Jersey 1/  as a means to establish our operating platform.  My suggestion that cannabis-adjacent businesses have merit is based on what the industry is today.  I have identified nine primary areas: (1) plant cultivation and management technologies, (2) facility designs and maintenance templates, (3) finish products allocations, trade markers, and prototypes, (4) system and application software for all platforms, (5) legal profiling for each state and best means to expedite any and all aspects for licensing and regulation management, (6) infrastructure models and trend surveying, (7) creating and developing analytical models and templates to management full scale production, (8) develop, manage and create source capital venues in the form of partnerships in specific  aspects of cannabis investment, including viable leasing structures , (9) construction projects that can be easily converted to indoor farming, warehouse and  production of marijuana on a commercial scale and  (10) establish local brands to consolidate on a national basis. Don’t misunderstand me, these ideas are just that – ideas, and may or may not part of our current business plan. The thoughts are merely my intent to  be prudent and risk-averse.
Whatever happens, First Jersey Cannabis Corporation will be ready to participate. It is my opinion, “Sustainable progression is the pathway to our future.  Our company offers a practical framework to increase stockholders’ value, realize economic growth, and achieve the transformation of cannabis as a viable commodity for the welfare of society."

Thank you for the opportunity to covey my viewpoint and the current events that govern our future.  
 

Christopher Netelkos
CEO First Jersey Cannabis Corporation

1/ As for New Jersey, lawmakers are meeting to discuss legislation that would tax the commodity at 12 percent, expunge past marijuana convictions and establish no limit on the number of marijuana retails. The Democratic caucuses of the Senate and Assembly convened Tuesday morning for a briefing on the latest version of bills that would expand the state’s medical marijuana program and allow anyone 21 or older to buy and consume marijuana. The latest draft is dated October 4th.  The bill also would allow municipalities to levy their own taxes of up to 2 percent, which could help defray costs for additional drug-recognition training for police and make the marijuana business more attractive to local officials.  I project a final vote will take place in February 2019.

 

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