Ca$hing Out 12: ENCORE PERFORMANCE

Week 12 of "Cashing Out" a series that follows one cannabis entrepreneur's weekly journey throughout the sale of his company.  This week's Investor "Bull" CE Hutton, managing partner of the Legacy Partners 5280 Venture Fund asks Dan Humiston questions about the trade show business.   Larry Mishkin from Hoban Law Group checks in to explain the importance of signing a non-compete.

Produced By MJBulls Media

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CE Hutton:
Oh there. That's it. Very interesting. You know it certainly lends itself to longevity at least in my opinion. Wait something's able to be absorbed if you will into existing infrastructure into a legacy of doing that kind of work and you can certainly bolster a business with that. So that's good background to know and understand.

Dan Humiston:
Hello everyone. Welcome back To cashing out brought to you each week by hope and law. I'm Dan Humiston and I'm gonna be here by myself today. I spoke Dena earlier and she's not going to be able to join us on today's call unfortunately but she'll be back next week. So I thought I'd take a minute to explain to our new listeners what this show is all about cashing out is a weekly show that follows one cannabis entrepreneurs journey through the sale of their company to start this off. We're selling my company O.G. ventures which owns 50 percent of the cannabis Congress business expo. So every week we've had guests come on to ask me questions about the company and we've really just discussed the whole process of selling a business. So in a few minutes I'm going to get on the phone. We have two phone calls today one with an investor and one with our lawyer. So that's basically the format of the show. And every week we get or we get a little bit deeper into it until hopefully we have a sale a successful sale and we try to share as much information with listeners as possible so that you know what it's like to sell a company in the cannabis business. All right so let's get started. Let me give a first investor bull on the phone.

CE Hutton:
Hello to you. Hey seeds Dan Humiston. Hey Dan how are you. I'm great. I'm great. How are you. I'm doing well sir.

Dan Humiston:
Good to hear from you for your listeners. You will remember C.E. Hutton as the managing director of legacy partners 50 to 80 fund like you see he was on our show. So a little bit of golf See I think you were Episode 20 but we chatted for a while. So it seems great to have you back on the show.

CE Hutton:
Oh Dan it's always good to hear from you. We had a great show and I told you before I was looking forward to getting back with you and doing another one and here we are.

Dan Humiston:
And I said I know you'll be back on the show. We are back together.

Dan Humiston:
Well you may hear some background music or background music you may hear some background noise. I'm actually I'm actually in Boulder today.

CE Hutton:
I'm in Boulder Colorado. Excellent.

Dan Humiston:
I'm in Boulder my my daughter Logan is a sophomore here and she invited me to lunch today. So.

CE Hutton:
Oh nice. Very nice.

Dan Humiston:
So I'm winging it in Boulder doing my first Boulder interview with C.E. Hutton. So everything's line enough. Great. So I'll just try to tee this up for our listeners because in case they haven't heard this how we do this aspect of our show cashing out. We're following one entrepreneur's journey which happens to me me when entrepreneurs journey through the sale of their cannabis company.

Dan Humiston:
And we have occasional investor balls come on our show to talk to us about where to talk to me ask me questions or somewhat put me on the hot seat. Like you would if you had a deal that you think you know what I want a little a little bit more about this company.

Dan Humiston:
Yes I understood. So I'm going to turn the mike over to you and I'm going to follow your lead however you normally do it when you get in that we're going to call round round two of a deal.

CE Hutton:
All right. Well Dan thanks again. I had a had a chance to review the information that you had sent forward. Og ventures LLC. I have to tell you I love the day. Me get some. It gets an attention getter gets some attention you know. But so Og ventures so I'm looking at this 50 percent ownership of leading edge expositions and then leading edge. One hundred percent of cannabis World Congress and business expositions CWCB expos so getting into that kind of business trade show ownership and those kind of pieces can you just light began how those pieces came together between LG G leading edge and also delivering surface to CWcbexpo.

Dan Humiston:
Well I'll give you the real the real convinced condensed version. I had a lot of experience in the former industry running trade shows and went to a show in Seattle that MJ biz put on and said This is wide open I need to do a trade show. And that was in 2013 did a show in Las Vegas in 2014 and another one in New York in 2014 and out of the blue I got approached by a big trade show company and A.J. Bruno who has 40 years of experience in the trade show industry and they wanted to get into the cannabis industry. They wanted to. They wanted to start a show and long story short we ended up selling 50 percent of the company to H.A. Bruno the managing partner over the Ralph I newsy moved the whole operation from my offices in Buffalo to their offices in New Jersey. They had the infrastructure they have the team they were running a show called The Franchise show which they had animal shows all over the world where they did franchise and so just built right into their already existing infrastructure and that's how it started. And that's how we ended up with 50 percent of it. They're the managing partners. As time went on for last five years I've worked this has been my full time job but as time went on my my roles got replaced as we brought in more and more and key people and little by little I'm you know I'm out of a job and I'm an entrepreneur I'm not an investor so I need to move on to the next venture which is the MJBulls Podcast or.

CE Hutton:
Dan that's it. Very interesting. You know it certainly lends itself to longevity at least my ending waits something's able to be absorbed into existing infrastructure into a if you will a legacy of doing that kind of work and you could certainly bolster business with that. So that's good backgrounds to know and understanding. I don't know that much about that industry but certainly a solid business decision and specs. One of the things also I want to ask Dad is you know we go to these kind of conferences and think you know where there is a lot of people they're putting on shows but the cost element of those things is very interesting to me and one of the things I note. From you. Was that barriers to entry are high. And I was interested. Your expertise in what she's seeing with the company. Just a couple of what those barriers are and how that statement is being made.

Dan Humiston:
Yeah for the first thing it's difficult to get key locations hotels to. Hotels are not hard but we're in convention centers. And especially for cannabis it's tough to have the credibility to get it into a convention center or a key location. That's our first. That's your first barrier. The second barriers most your costs are upfront so you need You need the upfront cash to get it off the ground. Exhibitors tend to be slow pay.

Dan Humiston:
So you're carrying on. You end up carrying a lot of your cost. Gosh almost up to the day of the show. OK. So that's really the second barrier to entry and probably the biggest one is is having enough cash to fund a fund that float.

CE Hutton:
Sure absolutely. So you're certainly funding the slopes. You know Dan it's one of the other things we know that the trade shows are particularly B2B. You know and I saw a comment around the high growth and they trade high. What's the life cycle that you were seeing. But these B2B trade shows and that continual growth cycle with these high multiples to 5 10 years. What's your take on.

Dan Humiston:
Well I mean my best experience was a former industry that I was in and that cycle really paralleled the industry that I was in I was in the indoor tanning industry and it very really parallel .

CE Hutton:
Nice.

Dan Humiston:
Ok so our trade shows really parallel how the industry was doing. But as consolidation occurred. There was a period of time where were we. Our shows became very very profitable.

Dan Humiston:
And then you could see feel that it just started because no one. What used to represent four companies now turned into one company in what used to represent maybe ten thousand ten ten booths now represented five booths.

Dan Humiston:
And so yes but that's all. I mean we are eons away from that in this industry. I think you know what we are banking on is that mainstream businesses once they feel confident to get enough to get into this industry they need a soft landing place someplace that they feel comfortable. I don't think the party scene in Las Vegas is exactly equipped for that group today. It will be some day but it today it's not like being in New York City being in Los Angeles more of a business more of a kind of a little bit. I hate to use this expression but button up show than it would be a more relaxed party atmosphere is is probably more conducive for that crowd that we're trying to get.

CE Hutton:
I agree with that comment. Certainly. Those markets big markets big media markets big high traffic high attention markets would you say that you've got a captive marketplace there and those two markets.

Dan Humiston:
Yeah. The best part about those shows is that we don't have to draw people in from other yes some other areas. I mean we can survive just in the driving in our driving radius. Thrive. I shouldn't say to survive we can thrive with just in the driving radius. I mean those are. Within a one hour two hour driving ratings were up.

CE Hutton:
It's probably a third of the population or at least the country be in better markets I mean really. Yeah. Unbelievable. I don't know.

Dan Humiston:
And having the equity being I mean we've been. This is their sixth year in New York and our fifth year in Los Angeles. So we have the equity of year after year. People you know if they want to exhibit New York City where the show in Los Angeles there are a few. There are a few shows in California but you know where the show in the Los Angeles Convention Center and so I think is I just feel like really the show is is positioned great for the entrance of mainstream American businesses. I think we are particularly hemp as hemp starts to come. I just feel like we're really well positioned for that. And you know so but we have a lot of work ahead of us and. And again I. I'm not the kind of person that likes to watch other people do do their work. I like to be the person doing the work. And I would and I have a lot of ideas. Some with this podcast and some with others but I'd really like to run with. And so it's time for me to move on. And that's the reason that I'm put I put this deck together.

CE Hutton:
Well then I think you said I spoke a little bit about it earlier. Was the whole thing about. Anytime anybody does it think it is truly about what's your why. And I know that you said in the beginning listen I've got I've done my time on Maple Drive so to speak. MJ MJBulls is your baby now and I just you know was there anything else with that and just focus on MJ balls or any kind of life things that you want to do.

Dan Humiston:
Well I know I have three kids. And so you know like it's nice to have a little time to spend with my kids but really I am anxious to get this.

Dan Humiston:
I have a lot of ambitious ideas with the podcast that I would pursue and that's so that's really my end and where my energies are gonna be focused for at least for the short term but yeah to stay tuned because there's a I can't tell you how many great ideas people like you have given me about the show and saying Dan what's wrong with this idea.

Dan Humiston:
All we could do that if if I covered all the ideas I would have to I need it any at least three more people doing shows. So it's going to be.

CE Hutton:
Isn't it beautiful isn't it beautiful have a clean slate to create what ever you want to create. That's beautiful.

Dan Humiston:
That's. You know what. See that's what I think about this industry. We are. We all have an opportunity to write our own story. This is a story that we have it's a clean slate and it's really gonna be in the podcast business. It's all green lights the whole way down the road it's green light. All you have to do is just start driving and if you want to be in it and if you want to be. And you know so. And you know this better than anyone. I mean I want to make sure that I read that I was gonna bring this up at the beginning but we'll bring it up in a close is it. I mean you have a unique niche that no one else is even taking a chance to do it. I don't. For those of you that didn't listen to see each episode back at episode 20 he has a mandate in his in the legacy partners 50 to 80 fund which 50 to 80 by the way stands is from Mile High. It's how many feet mile and Denver is but you have a mandate in that in your fund which a portion of of the money that you raise will be invested in minority owned cannabis businesses. I think that needs to be shouted from the hills and that's why. Absolutely. Because it's there's so much opportunity out there and it's getting overlooked and I think that. And like I said you have all green lights down your road to.

CE Hutton:
Yeah absolutely. And you know whether it's you know the secret with us and thanks for. Thanks for that. So that note I mean literally week we see ourselves as you know with with our minority focus segment of that being a four day work story. And we certainly want to make those things happen because it's a niche and a marketplace that needs to be spoken to or spoken about. So we're we're very very proud of that. So thank you for mentioning that again Dad. Appreciate that. But like you said it's creating from a slate and beautiful gardens and beautiful things happen. You have a chance to create it. We were there.

Dan Humiston:
Well we're all having fun. I think that's that's the best part about this is we're an industry. It's fun. We're with people that are fun.

Dan Humiston:
And yes it's fun to succeed and

CE Hutton:
Well I would like to say I congratulate you on your success with the business and certainly more congratulations and best wishes to you on the new life. This has really been interesting and insightful formula I really appreciate you. Allow me to be a guest today and go through this with you.

Dan Humiston:
Yeah. And I appreciate you doing it. And if there's any more information that you need or you want to look at additional information just let me know and we will move on from there.

CE Hutton:
Absolutely. Dan thank you so much.

CE Hutton:
You're welcome. And I will. Hopefully we'll have you on again very soon.

CE Hutton:
I certainly hope you're going to have a great afternoon. I appreciate.

Dan Humiston:
Ok. Before we jump on our next call let me just do a little bit of business and think one of our sponsors blaze which is a cannabis technology company. They make software for dispensaries and distributors and soon they'll be launching a new software for cultivation and manufacturing. Chris file this is a CEO over there. He was on the MJBulls Podcast a few episodes ago. Good guy. So if you're a dispensary or distributor and you're looking for a software check out blaze it's blaze.me.

Dan Humiston:
Ok now let's get to our next guest. Well today Larry it's just you and me.

Dan Humiston:
Dina is not with us today but one of the things that we are hearing from some of the people that are interested in buying is that they want me to not get involved in trade shows or conferences. And you know there's some there's some things I'd like to do with the MJBulls Podcast that could resemble. A conference it'd be more of a more of an event type of things. But. And I'm just not sure where I should go with this. I don't know. So I wanted to hear from you. Explain what the intent of non compete is how we can carve it out in a way that I can still do stuff with the podcast and not in V in violation of it.

Larry Mishkin:
Ok. Well it's a very interesting topic than the truth of the matter is it's one of the most important issues that anyone who is selling their business will face. But people tend to look past that and that's for a very specific reason. We typically think of no competes within the context of an employee who's been working for you and is now going to leave and they want to go work for a competitor and you don't want that to happen. You spent a lot of time teaching them training them introducing to your customers. And the last thing you do is you wanted to go across town and sit down and start using all that knowledge and information to help someone else. What we've seen in the standard world is that now computers are often not enforceable but you really understand that. And they'll try not to get too technical here. What we're really talking about is something called a restrictive covenant. People use the term 90 complete interchangeably with a lot of other things. And that's where the confusion comes at. Well we have a restrictive covenants there's three types. The first is the traditional nine complete that says I will go work for a competitor. The second one is a solicitation. I will not solicit your customers or your employees. And the third one is confidentiality agreements. I will not disclose any confidential information I learned while working here.

Larry Mishkin:
People tend to call all three of them no complete but they're really not. And this is why it's important in the standard employee context the nice computer itself is typically not enforceable. The court's not going to restrict someone from earning a living unless the employer can really show they were the top boss and had you all the secret formulas and we can't let them go. No solicitations and confidentiality agreements will typically be enforced if certain standards are met. But if that no compete that really gets everybody thinking and people say oh you know I've heard of employees who leave and compete and you know they go ahead and do it anyway. But it's a little bit different when we're talking about the sale of a business. When people sell a business the buyer will almost always ask for a no compete. And the reason is because the buyer has just done purchasing all of your goodwill that you have built up over the years. That's why they're buying your business and not just starting a new one necessarily. Your business has a reputation that has a name. People know about it when they hear about it. All right. That conference that's the way we want to go to so that that's really what you're paying for. If the seller can sell you all of that and then two weeks later come back and say hey I'm starting my own brand new conference business and people say well late are we've always wanted to work with Daryn.

Larry Mishkin:
We don't know who this new guy is even though he bought the business if Dan is coming back. We're going to stay with Dan for the guy who bought the business think wait a second. I just paid your money for all this goodwill and you immediately took it way back by opening up across the street from me. So when we have a night compete that if you give an ancillary to the sale of a business as part of the sale of a business. Portugal enforce those all day long. So if you are showing your business you need to understand what that means for some period of time after the sale. You will not be allowed to go back into that same business unless the seller or excuse me the buyer says yes go ahead. We don't care which they usually don't. So I deal with people who are getting ready to say the documents they always said to them what are you going to do next. Well I might you know take a few months off and I think I'm going to go start at the new business and I say to them you can start your business but not in this area not in this market. Not to try to compete with them. It has to be something completely different.

Dan Humiston:
It's a pretty big umbrella trade show or conferences. That's a really big umbrella. It could. It could arguably be a lot of things that are kind of in the gray area. So when we do this we have to make sure that we carve out some of those or define some of those gray areas.

Larry Mishkin:
is there in fact you've hit the nail right on the head. What I will tell my clients when they are selling is tell me what you want to do next. And let's see if we can figure out a way to carve out an exception for the no compete to allow this type of activity and you will find some purchasers will be flexible enough to say yes sure you can go ahead and do that. But sometimes they will even to the people you know I don't like if you stay in the industry or associated with the industry because you know you bring a very positive influence on the industry and every time somebody here is your name they're going to think of your business which I know own. So I don't care if they come in and do the business do they think you want it back that's fine with me as long as they're coming in and giving me business. That's the important thing. But you're absolutely right. You need to know what you need to go and part of the negotiations. You want to carve out that little space that lets you go do what you want to do next.

Dan Humiston:
Ok. Well this has been we've been speaking with Larry Mishkin who is from the Michigan Law Group and he's also of counsel with the Hoban Law Group and they can handle any of your cannabis related or 9 cannabis related issues. So Larry thanks again for being the reoccurring legal expert on our show and probably will talk to you next week if you're around

Larry Mishkin:
Thank you for the opportunity. It's a lot of fun and I really enjoy it.

Dan Humiston:
Yeah me too. Thanks. OK. That's our show for today. I want to thank Jamie Humiston for composing the music for this show. All the original music was by Jamie Humiston. Also if anybody has any questions comments criticisms ideas please e-mail me at connected MJBulls.com. Have a great week and I'll see you next week.

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