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Echoes

Greetings, In December 1776, Thomas Paine took stock of a fledgling and war-torn America, famously observing “these are the times that try men’s souls.” Now, as the world faces the worst pandemic of the past 100 years, we can’t help but hear the echo of Paine’s words. As of this publication date, global cases of the novel coronavirus had exceeded 1.5 million with over 85,000 deaths and few signs of slowing down. The world is under various forms of quarantine that restrict citizen activities and movements, and healthcare providers are racing to fortify themselves for an expected wave of critically-ill patients. Financial markets have tumbled, with major U.S. indexes off approximately 30%, with the depth and duration of the coming economic downturn remaining to be seen. In response, governments worldwide have enacted unprecedented stimulus measures, including $2 trillion in aid from the U.S. In this newsletter, we won’t make any attempt to minimize the scope of challenges ahead; heck, we won’t even try to make a snappy-sounding prediction. In that regard, we’ll heed Yogi Berra’s advice: “It’s hard to make predictions, especially about the future." What we can do (other than show off our sweet “work-from-home beards”) is give you a read through on how the crisis is impacting the cannabis industry. And you may find it surprising… As the pandemic initially spread in the U.S., local governments began implementing quarantine rules, including the closure of “non-essential” businesses. But what is “non-essential” to our lives? At first, major cannabis hubs like San Francisco and Denver did indeed classify cannabis companies as “non-essential.” However, both cities immediately reversed course after a huge outcry from citizens. Since then, many others have followed suit, cementing cannabis’s status as an “essential” product for modern times. With cannabis companies open for business and quarantine restrictions in place, the demand for cannabis has soared. In California, for example, data provider Headset reported that cannabis sales jumped 56% on the Monday after “shelter-in place” rules were adopted in San Francisco (compared to the average from the four previous Mondays). Interestingly, delivery provider Eaze reported that orders from first-time customers jumped 50% from the annual average. While a portion of this demand spike is undoubtedly from “stocking up” and, therefore, unsustainable, we are optimistic that current times are a meaningful opportunity for cannabis to demonstrate its benefits, increase mind share, and build a new and broader consumer base. In fact, Headset has recently confirmed March year-on-year sales in California of 53%. Even with this demand surge, cannabis still faces plenty of challenges. There have been significant capital shortages in the past, and we anticipate these shortages to get worse, as investors digest the impact of falling stock prices and a global recession. Furthermore, any businesses dependent on regulatory/licensing decisions are likely to face meaningful delays, as local government resources are redirected towards pandemic care. Lastly, cannabis companies, like other businesses, need to bear additional expenses to properly protect their products, employees, stores, and supply chains from coronavirus. Amidst the cloud of anxiety and uncertainty bestowed on us by coronavirus, we wanted this newsletter to be a brief respite – a small breath of optimism to remind us of our collective resourcefulness and adaptability. Because it’s this spirit that will guide us forward to better times. Or, as Charles Dickens echoes (much more poetically), “there are dark shadows on the earth, but its lights are stronger in the contrast.” Thanks for tuning in, and until our next update, please stay safe and healthy. Cheers, Mike, Kip, and Austin Co-Managers, Presidio View Capital

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