Episode 101 - Darren Gleeman, MBO Ventures

[Music] [Music] what's up everybody and welcome back to the apartment 113 podcast where we talk with cool folks in the Cannabis and psychedelics Industry to learn about their projects and celebrate their successes my name is Rob Sanchez and this is episode 101 we're joined today by Darren gleeman managing partner at MBO Ventures Darren Was the founder of ecoupons managing partner of GMD trading and GB trading he's an ESOP extraordinaire and often sought out for his expertise in the topic along with his financial Acumen initially he founded a firm that took the human element out of

trading and transitioned the company into one of the first highfrequency trading Platforms in the world trading over 1% of all us equities every day esops can help accomplish a successful exit for Business owners where they can sell their firms or a portion of it to their employees Congress has created a tremendous tax advantage on this enabling owners to earn significantly more money when selling to an ESOP over private Equity no employee funds are required owners can defer their capital gains on the sale of the company indefinitely escorp esops are a tax-free entity even for cannabis

and the loan principal is paid back to the owner with Pre-tax dollars owners can Main maintain managerial control and upside potential and employee retention is increased as they become owners working harder and better find out more at mov ventures.com and enjoy the show this episode is sponsored by Green Rush accounting and tax Consulting whether you're a startup mid-market business or a Fortune 500 company green Rush provides top-notch accounting services and support for all your cannabis and psychedelics needs Their managing director Daryl gendus is a practicing CPA with over 30 years of experience in public accounting

specializing in multi-state tax challenges he's worked with clients across various industries from agriculture to Aerospace with a client Centric results-driven approach focused on exceeding expectations Daryl was also featured way back on episode 5 of the apartment 113 podcast green Rush offers a full Suite Of tax consulting services including sales and use tax state and local tax audit defense Nexus studies and much more they're here to help you navigate the complexities of state and local taxes with ease so if you're looking for an expert team that understands the ins and outs of cannabis and psychedelics look

no further than green Rush accounting and tax Consulting visit greenrush tax.com to learn more and get started Today Darren welcome man thanks for joining me I appreciate it we're connecting across the country today from Vegas to New York that's awesome yeah it's awesome so uh um where did your story begin man how did you find yourself uh working with esops and and the Cannabis industry in general was it a passion already for cannabis or was there a catalyst that kind of pulled you this direction nope absolutely not no there was no Catalyst that pushed me

in This direction so I uh so I'm a finance guy and so back in uh a long time ago back in in 2001 I started a uh a hedge fund I uh I was working for this company and it was trading stocks and you know in a room with a bunch of people and we found myself and two other the guys we found a pattern in the stock market and we're able to trade this pattern and make money like a literal pattern in the stock market wow yeah so yeah I mean Which is you don't

think it's there but they're there right and so we trading between the three of us we had like a spreadsheets at the time and we were able to trade about six stocks at a time using this pattern so I had an idea what if we can computerize this pattern and trade instead of six stocks trade 6,000 stocks then we can do really well scale it right up scale it right up we need the computer so spoke to the uh um the uh our manager who spoke to the Compliance guy uh the compliance guy is like

no way absolutely not you can blow us up well uh you know it's kind of like a Horatio aler type of thing but we went to a hedge fund to back us and they were going to back us we get like 12% if they back you right and again went up the ladder they're going to back us and when they realized what we were going to do via this computer they compliance guy said no you can totally blow the company up so we had to do it on our own so we Went out you k

out the mortgages to take it put all your money into it uh we got a programmer got a company a broker term allowed us to trade and took us about six months to get in and we did it um and it worked and that pattern worked worked um and it worked much better than we expected but that pattern which is cool when you're using computer software right and you have a database all of a sudden we saw a lot of data and then we came up with other patterns that we saw Which you couldn't see

unless you had that data ah so it kind of could snowball for you a little bit that's right it snowball and so we uh we blew this thing up and by uh 2018 when we we actually sold the company we were trading over 1% of the entire US market every single day wow is it's billions and billions and billions of shares of stock yeah from those six from those six stocks to Oh No No Yeah from the six stocks to now thousand massive portion Massive portion and we had hundreds of programs tons of people um

so this Israeli firm uh bought us and when they bought us you now have these for us this non-compete so I can never compete and I can't talk about certain things you can't do this so the whole world the HED Fun World of trading stocks is gone kind of had to turn your turn your back a little bit and find something new yeah and so I had invested in companies with this ESOP structure whatever that is um And I did well with it and it's something where an ESOP is where you sell you com to

your employees so I backed one of these companies and it did phenomenally well so 2018 I'm relaxed 2019 well what am I gonna do it's not like you're retiring um I'm like you know what I want to get into this ESOP world and that's how I became a ESOP investment banker and I partnered up with the nation's largest ESOP Investment Bank and so my company is kind of like the almost like a private Equity arm for this uh for this Investment Bank so we invest our Capital along with their Capital into different companies and then

about three years ago I'm hanging out with some cannabis guys in the business and they start tell telling me about 280e as soon as they tell me about 280e one of the guys looks at me because I had explains how ESOP Works he's like Wait a sec I think from what you're telling me with this 280 and I'm like yeah uh with an ESOP you pay no taxes so that means that the ESOP is a way to totally get around 280 I'm like yeah and like sh so at that point we didn't tell anybody and

we decided to go out and let's roll up and start buying companies right um and it's a big advantage that we had right but I'm not a private Equity guy I'm a hedge fund guy it's a totally Different world and we went out looking for companies it was very difficult and you're dealing with cannabis which is another level of headache what you're dealing with so we did that for like nine months right yeah trying to find companies um and it's just like you know what let's go to the origin of what we're doing which is

investment banking so invest in banking is I go to other companies explain to them what this is and then you try to get them to hire you So you can structure the ESOP for them and that's what we've been doing yeah oh wow man that's quite a journey to turn to turn it around with so with a successful exit in there to kind of act as the launching pad and then uh I could see those Wheels were spinning still as you were looking at other spaces or kind of other avenues that way that's oh yeah

yeah I mean and I'm I've been an entrepreneur for a very long time and I've had uh numerous numerous failures I've had some good companies and more numerous you know it's like as an entrepreneur you know it's all about the journey and there are so many ups and there's so many downs and it's like it's just got to keep on forging ahead and all of a sudden back in 2001 I hit on that hedge fund yeah I hit you know I could have just as easily have gone the other way where okay well I guess

I'll do something else now you know yeah kind of Fate fate deals of cards there you Just got to keep keep on pushing through huh yeah and then I became this expert in ESOP so now I I am I'm a real super expert in this ESOP thing could you explain a little bit um about the like maybe the origins of ESOP or why that structure is um alluring to you or to to others outside of 280e and then we can get into some of that too yeah yeah let's just get into it um so an

ESOP is just another way to sell your company that's it right you can sell your Company to uh a private Equity Firm you can sell your company to a strategic buyer that's like a competitor right um or you can sell to your employees the this thing called the ESOP structure but no one knows what that is no one knows you can sell to your employees well my employees have no money how are they going to be able to compete with a private Equity Firm and make me money well they can't now the government right the

government actually wants Employees to buy companies because the government right back in the 1950 50s in the 1950s there was a whole thing communism versus capitalism which is better right communism is where no one owns anything everyone just works for the government and the government decides how much money they going to pay you based on your needs that's communism capitalism is completely free enterprise I can own things I can start things but if I'm a worker how am I going to get The money to go out and buy a company or start a I don't

have the the money I'm putting food in the tail for my kids right so and I need to buy a house send them to college retire you can't do it so most people is very difficult to actually be an entrepreneur and store and so the government knew this back in the 1950s so how can we get these workers these regular people to embrace capitalism well if we can convince a business owner to sell to the employees That's a step how do we convince them how do I convince you to sell your company which is worth

let's say $100 million how do I convince you to sell well I convince you by giving you money by subsidizing things giving you incentives that's how I convince you so the amount of incentives and subsidies that the government gives makes total sense for most companies to sell to the employees it totally makes sense the reason why You don't see it all over the place is nobody knows it exists if you go to operates on the on the sidelines at times huh no totally Sidelines nobody knows what it is that's the biggest the biggest biggest problem

with this is education because at the end of this when I tell you how this works if I explain to you correctly you should say to yourself that doesn't make sense it sounds too good to be true and let's see If you say it right let's see you ready okay so this is it let's just take a very high a very big company just to make the numbers easy for the audience right so we're going to say $20 million is the amount of money this company makes every year that's called the net income right and

the value of this company this fake company NCO is $100 million 20 Time 5 is $100 million that's the value of this compan all right and we're going to make it a manufacturing Firm and I'm in New York so we're going to be New York a New York manufacturing fir doesn't matter if it's cannabis or what 100 million bucks okay private equ comes in they are for 100 million bucks great when you sell to private equity for $100 million there's this thing called capital gains tax that you have to pay you got to pay capital

gains tax on the sale of your company so for a $100 million company the capital gains tax in New York is about 30% federal and State 30% so sell for 100 million bucks $30 million goes to the government cannot get around that when you sell that same to your employees via the ESOP the owners can defer their capital gains tax and structured correctly they can defer it forever so that's $30 million in that pocket by selling to the ESOP okay that's a great subsidy the government decided to give to esops back in 1986 that's number

one right yes that's significant right there just significant right just redirecting that and providing that it's first incentive hug it's a big incentive right $30 million that means that if the ESOP sold for instead of 100 let's say it was sold for $71 million it's still better it's still better because they're not paying the capital gain it's still better right so another thing private Equity everyone everyone wants to sell to private Equity Private Equity Firm for the audience private Equity firms are these large conglomerate organizations they have some money and they go out and they

buy different types of portfolios of companies maybe they buy manufacturing firms of mugs maybe they're buying dental offices and maybe they're also buying Gumball manufacturing who knows what they're doing but they're buying portfolios of companies so in this company it's a $100 million this is how They buy it they're not giving you a $100 million when a private Equity Firm comes in that's not how it works what they do is from their own funds money again this example is $100 million company they're going to give them 20 million bucks from the funds of money right

they're making 20 million a year they're going to give you $20 million that's their risk then they go to a bank like JP Morgan and they're going to borrow money Off of your firm so if your firm is making $20 million a year they're going to borrow they can borrow 60 million bucks right they can borrow 60 million but I'm not taking the risk the private Equity Firm doesn't take the risk the company's taking that risk so they borrow $60 million off of the company's cash flow which then goes to the owner so again they

get 20 million from the fund goes to the owner and then 60 million that they borrow goes to the Owner that's $80 million the last 20 million is called an earnout that means that you said you were going to grow at 5% a year okay great Rob as long as you reach those numbers of 5% a year in year three you're going to get that $20 million if you don't grow strings attached you're not getting that $20 million major strings attached that's typical plain vanilla private Equity that's how you get paid your $100 million everyone

Thinks oh I'm going to sell my company and I'm going to get all this cash up no that's not what happens you become an employee of the company and it takes many many years to actually get it yeah and then the private Equity Firm would actually pay on that loan then over time no or the company is paying towards that loan over time off the off the net revenue that's right and if the company starts going down they can't pay that back they're not they're not paying it Back they can't pay back you know it's

non Rec it's kind of crazy but that's how it works again we're not taking risks it's almost like a like a house right they put in a little bit of money and they borrow the rest right so with an ESOP okay it costs the employees nothing we do it just like private Equity very similar cost them nothing so we go out with an ESOP and you borrow that same $60 million from the same bank and the rates Will be a little bit better you're going to borrow from the same bank and that same $60 million

then goes to the owner but remember they don't have to pay the capital gains tax so they get $60 million no cap gam tax the other 40 million is called a Cenote a Cenote is an IOU from the company back to the owner so they get 60 from JP Morgan 40 from the sellen note well do you really want to sell a note number one right do you really want That sell a note you'd rather have the cash you want the sell a note you do want the selling note you know why because what they

get for that selling note what they get for that sell note is they're going to get a little interest rate maybe 5% a year on that selling note because a cell note is an IOU it's like debt right they let's say 5 or 6% plus they're going to get warrants to buy back a piece of the company in the future a warrant is like A stock option allowing you as the owner to buy part of your company back again so you can get warrants to buy back let's say 40% of your company let say get

warrants to buy back 40% of your company all right the price the predetermined price to buy back 40% of that company right would be about at $100 million 40% the predetermined price is 15 million bucks that's called the strike price the time frame is about 15 to 20 years in English what does that Mean that means that any time in the next 15 20 years you're whenever you're ready you hand in the warrants you write the check for $15 million and you get back40 % of your company wow yeah that's a pretty big deal right

and you maintain that seller note as well throughout all that process you have that seller note you're going to get that paid back you're going to get that additional $40 million which is coming back to you now remember I said That you get the interest rate is going to be a little bit better for that yeah well the reason why the interest is a little bit better is because normally if you take out a loan if anybody takes out a loan in this country right there on the loan everyone has interest now in the normal

world you can deduct interest nobody can deduct a loan itself you can't if I if you borrow from the bank $50,000 you can't take a deduction You just Bor you have to pay it back but you never have to you never actually can deduct that you can't take a deduction of the principle the loan right except with an ESOP when the ESOP is doing this the company can take a full deduction of the entire loan up to the price of the company that you sell so if it's a $100 million company right we borrowed 100

million right we borrowed 60 million from JP Morgan 40 million selling note the company can take aund million Deduction which is huge yeah that's a great you can deduct aund hundred million now in the can those margins yeah with that's right with 28 you know you can't take a deduction that's so cannabis you can't take the deduction sorry but I still want to give that plugin just for people that would understand understand that because it's fairly huge a subsidy yeah 280 is just a a nightmare for some businesses to have to have to just eat

Those costs that they're spending on everything along the way yeah and that's in every business right every business nobody wants to pay tax 28 or no 28e income tax is just it's a huge huge gain so what happened back in 1998 right Congress is like look we need more incentives we need more incentives to go out and get people to sell to their employees so Congress came up with an idea what if what if we can somehow make an employee-owned company that pays no Federal tax and no state tax so they came up with a

law in 1998 Bill Clinton signs it into law so since 1998 a company that's 100% owned by an ESOP pays no income tax so in this company that were talking about100 million making $20 million a year if they sell a 100% of the company they pay no income tax forever and when you pay no income tax 28 is irrelevant it doesn't matter About 280 who cares he just paying no income tax so when you put together right when you put this firm together day one you're going to get $60 million the owner right they get

60 million over the next three years they going to get paid back let's say their 40 million bucks to get their $100 million and they have warrants to buy back for 40% of the company let's say Federal legalization happens in 2030 let's say 2031 whatever the company's generating tons of cash you're buying more companies you can roll up other companies and then we what say you want to buy another company and I am an ESOP owned company I buy you the moment I buy your company all of your income comes to me completely taxfree there's

no tax right wow no tax so now let's saying this company is make believe world I sell it to Budweiser 2031 Budweiser comes in and make a bid For $500 million all right we terminate the ESOP all of the employees vest I hand in those warrants remember I said those warrants I hand in the warrants I write a check for $15 million I get back 40% of the equity the $500 million comes in I now as that warrant hold holder gets 40% of that which is 200 million the employees now get $300 million which goes

into all of their Retirement accounts which they do not pay any tax on it at all until they take it out so it can now grow in their retirement accounts for the next 20 years completely taxfree everyone wins and that's why the government does it because all of these incentives and all these tax subsidies are all about the employees of how do we get these employees to also be enriched by capitalism I see yeah and then the employees themselves when an ESOP is Being set up I was part of a software company that had that

and I think it was just a little extra paperwork on my side and then it was sort of operating in the background you know I didn't I wasn't right tapped into it at all after that yeah um so depending on the company how you structure it so if they had just done it with you well was it an employee stock ownership plan or was these options which is totally different oh it might have been just options yeah Because in software companies it's more people make that mistake it's more usually they call them esops it's not

it's it's these are options that you got and so the options that you got said all right well you get an option to buy stock at a certain price $50 and if you're there for three years you can exercise those options at $50 and the stock is trading at 200 that's what an option is this is a completely different world so this is really if you If you're working here for is there determined amount of time then that the employees would need to be there before the sale or if you're a current employee when that

sale would happen that's when the vesting and everything would flip over yeah you can do you can do a lot of different things when you actually structure the plan but normally what people do is let's say we start ESOP today's day one rob you and I are the owners all right so what we're going to Do is all the employees are going to invest over a period of five years so you're there this year for 365 days they can to invest 20% next year another 20% so it's 40 60 80 and they're there for five

years they vest 100% in terms of the stock being allocated the stock that they actually will be getting is allocated to them over about a 20 25 year period so if it's a 25 year period that the stock is being allocated that means that every year they're going to Get 4% allocation to this for the stock and how do you determine how much stock we get if I make 50 Grand and you make 100 Grand you're going to get twice as much stock as me uh based based the salary inome salary I got you back

did you and now I can't hear you oh yeah you were saying it's all it's all based on salary or on income for the employee it's all based on salary so if you're making 50 Grand and I make 100 Grand I'm Get twice as much stock as you and if you think about it right okay so every year you get a an account of how well you're doing with the value of the company is so this year I'm there for a couple years I vest I'm there for say five years well let's say my value

is now worth 100 Grand well I know if I stay next year I'm going to get another 4% of the stock so I'm incentive to stay another year and then every year I see this so I'm always incentive to stay so Retention employee retention in an employee in a stock in an ESOP company is 300% greater wow than a regular company it's crazy yeah wow so you're you're getting the benefits already of the ESOP program and then you're able to retain your employees that have all of that knowledge and all the expertise to keep the

company rolling too and that is excellent that it's kind of a onew punch that's it's a onw punch where do you want to work you know do you want to Work in a company where you're literally getting stock every year or a company where just Rel your employee of course you want to work for an eone company and for the owner productivity also increases and it makes sense right if you think about it prod everyone has some skin in the game that's right everyone has skin in the game so it makes a difference it usually

takes for employees to kind of get it it takes about two years about a year and a Half and then people like there's usually a couple of people like oh my God this is interesting they start looking into it and then it starts blossoming from there and then once it takes hold I'm just getting Shivers once it takes hold I mean you really do see people they're coming in earlier they're staying late that guy that's messing around over there that's not working it pisses people off because we're all bosses now this is my company I

don't know if you in Vegas I don't know do they ever have you ever have you ever seen a Publix Supermarket uh no I I don't think so I've SE I've seen them elsewhere okay yeah so Publix is like one of the largest Supermarket chains in the country if you go into Publix and you see the employees in Publix they're millionaires they literally are millionaires I think you went out again so they're they're full on uh es for Publix yeah so Publix they they uh they're literally millionaires a lot of them and you'll notice how

they treat you when you walk into a Publix it's unlike any other grocery store you've ever been into everyone is smiling happy you go into the fruit area take a taste of this let me walk you over here the cash registers the people who are doing the operating the cash registers literally could be millionaires so it is a different experience and that's Because they are an ESOP owned company wow yeah Albertson's here needs to take a page out of that book exactly exactly exactly are there are there obstacles to becoming an ESOP company that um

that would give owners um you know hesitation there or is it more just about the the knowledge of just not being aware of how the ESOP program works out uh the knowledge is the biggest thing that's the biggest thing is people don't know what I'm Giving you this education is now you're one of the top few people in the in the country that know this right oh I'm ready to preach the good word of ESOP now yeah um yeah the the the other obstacles of fees this is a complete merger I mean this is a

m&a deal that you're doing and it's very expensive so got the smallest company Standalone company to do this the smallest is about about $2.5 million in in net income a year and 20 employees that's the Smallest so that's it's small but it's not that small right so not that many companies so actually what we're doing is I'm working with uh some law firms we're putting together a structure where we're putting a collective together of these smaller firms that can come together and form their own ESOP under ESOP holding company where they each will have their

own independence um even though under this ESOP structure and this way they'll all advertize the cost Of it because the cost could be could be a million bucks to do it I mean it's expensive to do this to get it set yeah to get it set up and the annual fees are nothing because you're you're paying no taxes you know so normally if a company's making $2.5 million a year in the Cannabis space they're paying with with 280e they're paying uh you know $1.6 million in tax without 280e you know they're paying $1.3 million in

in tax so The tax is huge if 280 goes away it doesn't go away it's still heavily taxed even without 280e it's still a tax so this is why the ESOP structure is pretty phenomenal just in terms of your additional cash flow that you're getting that's the key here you doubling your cash flow overnight and uh initially did you you started with just U General companies before turning towards the Cannabis space what was your first Endeavor into the Cannabis space with ESOP yeah so we structure in it we've we've done over 400 esops in the

past 25 years remember I told you I'm working with the largest ESOP Investment Bank yeah wow um in any one year we do about 30 35 esops every single year that which is a huge amount um in 2020 three we closed we did four esops in the country for cannabis companies and this year we'll be doing probably about same thing about four or five will hopefully close this year too wow so It's it is gaining some traction as the the Cannabis space becomes more aware of it I saw that it's all awareness that's exactly the

first one you were working with was a theory Wellness um an MSO uh for the for this nation here how did how did that roll out go or how did the the traction gain or the um the process go for them the process was long you know that company great guys super super professional um they are very much about their employees and wanted to do Something for their employees you know so for them it was very employee based and then the additional incentives those tax incentives are phenomenal and that's what they that they love that

um of course uh but that was for them it was more secondary they were very much into the employee how it would work with the employees and how how the employees can you know really take ownership and how they can build up their own uh base of money and so with that it took a while It was probably about about a year process of just explaining we've probably had I don't know 15 different conversations with their you know the owners all the time explaining and these guys are super smart and so they would go in

and ask really pointed questions um and then they they pulled the trigger I guess it was uh uh I guess in the like April April 2023 and we closed it in December 2023 awesome wow and so now here at the End of this year that some of that some of those employees are to start besting and uh definitely going to change man that's that is excellent that you can go at this as an owner to you know improve the lives of your employees and you have some altruistic motives there while you're still getting the benefits

of being the owner and you know getting those uh getting those payments that you would get from a private Equity cell that's right you get all those and yeah It really is it's it's a complete winwin and again the government does it because they do want what's great for the employees I mean it's and by the way it's not like with an ESOP is something that is only loved by you know Democrats it is beloved by Republicans and Democrats together it definitely crosses the aisle with those benefits yeah it's actually one of the only things

that crosses the aisle so so Mitch McConnell is one of the most conservative Republicans right he loves esops and why does he love esops because he wants your company to pay as little taxes as possible so he loves it for the tax benefits yeah and then Bernie Sanders who's one of the most far-left liberals on the Democratic side he loves esops because of the benefits that you get for the employees wow yeah so they both it actually crosses the aisle definitely does man it's crazy yeah you can tell the incentives Are clear on that side

when it comes time to sell or time to restructure the business it's um uh sounds like it's a long process you know but it's worth it in the end seeing that through sometimes the sometimes those long Journeys are necessary for the for the benefits oh it's a long journey yeah I mean you it is a real sale you are selling it to the employee you got these warrants so you have that second byy at the Apple but it's a real sale and so it's a real m&a Process that you're going through yeah it's a pain

in the ass it's a pain in the ass m&a by itself is not uh a simple thing for for businesses yeah and I've I've been a part of several uh several Acquisitions that were a little bit bumpy on the Cannabis software side yeah it it gets bumpy so yeah with an ESOP it's not bumpy because a private Equity Firm is not coming in that's going to potentially fire you and a strategic buyer is not coming in that Also will potentially fire you which is really a bad thing about that with an ESOP it's the exact

opposite you're not getting fired right your job is going to be much better and you're going to make more money so you're getting uh you're getting empowered that way right you're getting and that necessity of your role is being kind of stamped you know set in stone that's excellent yeah yeah that's cool so at at this point then are um are you actively do you seek out companies To start converting ESOP and like work for you know the education side of that or or now that things are rolling are people starting to come to you

and yeah people are people are starting to definitely come to me now which is great um it's all the education process and if you right now if you contact any if you go to any of your contacts right now if you have any lawyers or accountants and you say I want to find out about esops and you you don't tell them Anything about me what's going to happen is they're gonna come back and they're talk and find out and and it's going to come back to me right now we you know we we've done so

much education through the years that right now for the ESOP structure like because I get it I understand cannabis I understand ESOP so it's all going to come back to me but yes it it's been T you know how hard it is right it's like it's nonstop for years I mean I got into this in cannabis 3 years ago now and it's taken years to get traction years and now still if I go and I'm walking through let's say some of these like MJ Biz whatever is people don't know what an ESOP is because it's

hard to get that traction so I still am always going out you know even like this podcast you know hopefully people are listening to it and not you know bored by the concept of esops you know um no it's not something to bore at all it's definitely uh yeah Engaging yeah I wanted to be engaging potential is massive it's massive but yeah you got to get people to listen so you want business owners to say hey what is that and call me let's let's talk about it start looking into it I mean I've I know

folks trying to uh you know trying to sell now it's been a constant game in the Cannabis space as you build up uh meet those walls have to take Investments or you know start looking for exit strategies um having it another Option on that table is definitely a breath of fresh air you don't have to feel pressured into into a cell or into into paying those capital gains that's right and and you know what right now no one's there's no cash so if you built up your company and let's just say You're Building you're making

$5 million a year and let's say the value is 25 million bucks there's no one that's giving you $25 million in the Cannabis World nobody and they're not even going to give you $5 million it's very difficult to get any cash what'll happen if you're doing well is you might have one of these public msos that'll say okay all right Rob I'll give you a million dollars cash and then I'm going to give you stock in my company for $24 million now I know that stock has dropped 98% in the past five years but that's

okay because there's nowhere else to go but up I me no you don't want that that's it's a still a tough sell isn't it it's a tough Sell you do ESOP ESOP is great yeah and um if they hire more employees while an ESOP structure is set up the the new employees then are automatically brought into that program or is there then a period of time they need to work for the company before joining the they all have the same thing it's all vesting right so if it's a fiveyear vesting schedule investing just means how

much of a percentage of that stock will they get remember I said You're getting 4% allocated every year right so and let's and this the best thing is 20% a year for five years so if I'm there for two years I'll have allocated 8% stock remember 4% a year so I have 8% allocation but I've only invested 20% I've only invested 40% so if I leave the value my value that I'm leaving at is 40% of 8% which is 3.2% is what you're actually going to be getting you're after you leave is that structure still

set up so that when the company or If the does sell that uh you would get that income or if you if you resign or you're terminated that ESOP structure is is cut off at that point well it depends of the owners right the owners in the plan have they have the ability to say look this is structured as an as a retirement plan and so we're going to get you your money um it's for when you retire not when you're 25 so there are rules if I'm a 25-year-old kid and I'm there for three

years and I want to take Money the ESOP can say no we're going to we have five years to pay you out so they can pay them out when they're 30 if they want and then once they turn 30 they can pay them out over a 5year period I believe in the Cannabis World they might do that but what happens if you do that you're paying these employees at whatever value it is at the time when you pay them so I quit today at 25 well 5 years from now the comp let's say the company

skyrockets That guy that left is and he's going to get paid in five years from now at that value so so that's where the the owner is going to be like should we pay them now or should we wait depending on their cash flow um and if they wait five years and they get bought out they're probably going to get bought out at a much higher price yeah yeah so that is in very interesting and the I mean the retention side of things is just a wild I mean I've been in so many companies where

uh Some roles in those companies can become a revolving door and that in and of itself can start to drag down other departments just because of the training time or the knowledge that's lost in customer or in Employees leaving that U being able to lock that in a little bit is going to help an owner sleep better at night just think of the dispenser right I mean you have a bud tender is so important to a dispenser if you get a good bud tender they are they're the Front lines they are so worth paying them

good money but someone else sees a great bud tender which is what they I don't know if they're doing it in the world now but if I had retail stores I'd be going out and trying to find the best bud tenders I could find and taking them all M works yeah and I want them in my company in my ESOP with they can get paid more money and get a piece of the company of course want to work for me yeah what's not incentivizing about that Yeah yeah exactly so there there's huge reasons to do

this and it is insane the amount of retention that 300% number I still cannot believe it it's just wild you wouldn't even think there was a method to increase retention 100% let alone the 300 that's 300% greater definitely satisfying do you see then the industry and and business in general starting to move towards esops more and more um or is there still is it still kind of a niche decision to make oh the The biggest the biggest biggest issue is education I mean right no one knows about it understanding it being being willing to do

that that work or you he the lecture you know that kind of thing it's very few people that ever come to me and say I want to do an ESOP no usually what happens is they heard this podcast and they're listening or the attorney did or an accountant they're like I don't believe that I don't let me speak to him and then they'll speak to Me and for us it's very important to speak to the attorneys and the accountants because those are the trusted advisers so that's who I always want to get to because when

you tell someone this they're like all right what's the catch it sounds too good to be true and when something is too good to be true it's not and in the Cannabis space as we know there's a lot of people out there J me that do fibs right a lot of fibbing there's a lot of lot of Bad Bad actors yeah so that's why it's very important for us to get as soon as possible as quickly as possible get to the lawyers and the accountants I mean there are some accountants and lawyers that I dealt

with three years ago that just didn't believe me um and these are lawyers they just didn't and it's not like they know about this by the way if you go contact any accountant or lawyer they're not going to know this they have no IDE they may have heard the term but They're not familiar with the not familiar oh an ESOP oh that's like a 401k right you don't need that it's a 401k no it's not a 401k you know so that's what you're dealing with you know all the time with this right and uh accountants

definitely making the world go around always uh since I started in Erp and learned about the financial backing that's possible in some of the cannabis software and you know just manufacturing software in general really It can be all this Glitz and glamour on the outside that helps the business but at the end of the day it's a backbone of accounting it's the numbers it's the backbone I me how do you know what your revenue is going to be and well wait a second if I go out and I do this marketing campaign did it work

well you need accounting you need the Erp system to give you the KPS sorry guys for using these these Buzz these Buzz letters yeah keep keep the acronyms Flowing I love it yeah all the acronym everyone's like yeah man that but that is the business at the end of the day I think we saw this phase in the Cannabis space where it was really we were talking before as the wild west it was kind of like hey money's coming in we're able to do this competition is light and it's definitely not the case anymore um

depending on the state you're in you know some states have thousands of Licenses dled out across the state and it is it's steep your margins become very important and your employees become very important if it's easier for them to just find another job um in the early days you know I had to leave I had to move out of state and actually go to Colorado to find that cannabis role but uh if I could have stayed you know K Kansas which will probably be the last uh last state to come online but if I could

have stayed there to find that Work I wouldn't have ended up making that move and I know that many folks wouldn't just because of the logistics of all of that you know uprooting the life oh yeah you upoaded yourself and you made that move that's great yeah that's an entrepreneurial move and but if you could find those those companies and now um you know especially like um New Mexico Oklahoma their license counts are insane I think Oklahoma's a little over 2,000 licenses and Minnesota just Passed a deal where they're going to do 300 and um

it's a start contrast there to to what's what's available but it's still going to create that price competition and start turning people to the numbers into just the longevity of their business yeah well that's what it show so if you really it was interesting because business in general right we want it to be legal and everyone wants Le legal and I want to be able to do what they want capitalism well no one Really wants capitalism in the Cannabis space because if you let the free markets roam what you're going to have is you're going

to drive cultivation down to I don't know $100 a pound you know know the Canabis going to be Rock Bottom it's rock rock bottom you go to the 7-Eleven you know it's going to be cheaper than you know a beer you know and so how are any dispensaries going to exist how is any cultivation facility in any state except for New Mexico maybe California they're going to win the Bread Basket states are going to win you'll have uh you know cannabis Boutique cannabis companies cultivator kind of kind of ship level work other than that if

you just W let go wild it's going to be 7-Eleven um and that's who will win it it has to be because you're going to drive it down to the least common denominator so you have what's called perfect competition and it'll be driven Down driven down where the margins will be so slim that 99% of the people sorry guys that's that's that' be that's not going to happen but if you went perfect competition just pure capitalism that's what would happen yeah definitely and I see that I see that kind of um hesitation around capitalism within

the market and there's kind of this like long-standing cannabis culture and then there's also this this new business initiatives that tend to clash you know Can't find a good balance it seems like ESOP does balance those scales so that you know the the folks the folks doing the work folks with the passion for the Cannabis and for their product are still able to profit while uh while the businesses can be started by you know entrepreneurial folks or investors on that side oh yeah and it's very difficult to compete with an EAP pH company because you're

doubling your cash flow so if I'm next door to you Right and I'm operating literally next door to you my bud is going to be better my prices are going to be cheaper and eventually I'm going to drive you out because you can't compete with me because I'm just going to be better than you and I can go cheaper prices yeah and those differentiators are so hard to find to clearly just state it that way is uh you know a gold mine for folks yeah that's excellent it really is and of course you need your

Erp systems and Your correct CFO and CPAs yeah get the right people in the right seats and uh give them the right software awesome Darren well what's next for you guys uh over at NBO Ventures any any other conferences on the on the map this year or any events planned yeah um I'm going to uh Nan which is in New Jersey and I'm going to that's in like two weeks from now on I'm giving a a pitch exactly I'm going to explain how this works um and so I'm going to go With so the one

the largest law firm in the country in the world actually is called Denton it's a very large law firm and so I'm doing a presentation with Dentons um about this ESOP structure and W that'll be yeah yeah that's good it's going to turn some heads for sure uh and get some lawyers and attorneys online with the program yeah if hopefully people come to the seminar you know again people think oh esops what is that you know and hopefully it won't scare People off yeah folks if if you see a seminar at a conference you're going

to that has the ESOP acronym you get yourself a seat and I'm going to go to uh MJ Biz you going to MJ Biz you going to go to Nan yeah definitely I love MJ Biz because everyone comes to me you know I don't have to travel for that one here in Vegas that's right that's right good any can I think that falls like October I Think that one might be like the first week of October there's a psychedelic conference I'll be at in La um over that weekend um it's called The Awakening consciousness there

it's put on by the the Psychedelic Institute of La so starting to turn into some of the companies there you know it's a little bit about the like facilitated experiences and guides and things but then also looking into more the the research and some of the the work that Could come down the road and now much further down the road that the FDA um denied the MDMA study here last week or two weeks back I don't know that that's ridiculous but I mean it's it's it's it's political um yes it's all so tied to other

things it takes a long time for that stigma to go or for enough proof to be there to really make the decision that's right yeah I mean it's it's it's too bad um but you know it Takes it takes a lot to just get through all of that BS um but it's it's in any industry and especially more in this you know the now the legal drug industry which you know think about it right now going from schedule one to schedule three which is a you know it's to me it's a no-brainer um I think

to you it's Nob brain or to most people in the Canada world like all right this is ridiculous but you know getting there is very very difficult and The DEA right and mgram the administrator the DEA she didn't sign the order to actually go to schedule three um and so now I think it's all about the election I think what's going to happen is they're going to try to push I assume everyone knows that schedule three here is on the in the podcast right or maybe some people do um I think the the administration is

going to really try to push it before the election try to make it one of those Topics one of those issues yeah they just did all the comment period normally it should take another year because there 43,000 comments that they have to answer and of those 43,000 supposedly like let's say 10% are real comments so that's 4,300 comments that you have to answer that they have to actually physically answer now the DEA Rank and file they actually don't want to be rescheduled but the administration does so there's a push And pull there if they get

it done before the election it'll get done then if they don't get it done before the election then it's all about the election if uh Trump wins the presidency it's not going to be rescheduled because a lot of Republicans do not want to reschedule it if it is Harris and she wins then it will be going to schedule three and probably happen I'm going to speculate you know q1 Q2 of 2025 yeah man that would be a big move and I know A lot of folks on the Legacy side they want you know just deschedule

not reschedule but I think we have to have those Stepping Stones at times and you know the the industry needs to needs to take the steps that are needed there's no way yeah there's no way you can't push for that unicorn uh scenario too again because in the canvas isue I have only been here for like three years but you know we're a very uh positive group and you know we're hopeful um for you Know for safe banking we're hopeful and this is every year we hopeful hopeful this doesn't happen um I think it has

to be in steps and so hopefully we'll get to schedule three that's a big deal and to me it's a big deal because number one we remove 28e which is a horrible horrible tax right we remove that but now if you get to schedule three it's the mindset I think of the country will change change because schedule 3 is really not going to do that much it's Still ferally illegal doesn't take that away but people don't understand that and I think there are a lot of members um in Congress that don't understand that either they

think that somehow that's legalizing it so once it happens after a while okay it's already legal then they hear the word legal is it legal it's legal and then it can become legal so I think the next presidential election whoever it's going to be in 2028 2029 um that's going to be they and then legalize it it's going to hinge on that Fally legal yeah we we'll we'll use that crystal ball prediction as a excellent way to close off the show Darren yeah thank you for for coming and sharing your knowledge about esops I'd recommend

any business owners out there to to do their diligence and and look into it and I'll make sure to to start preaching the good word as well now that I know some of those benefits it sounds Like an excellent way to avoid that 280e component and actually profit on the the hard work you're putting in where can folks connect with you and um and follow up with MBO Ventures yeah so we my website is MB ventures.com you know my name is Darren glean um this is a podcast you can't see it right yeah it'll be

Audio Only yeah Audio Only yeah so uh go to the website or go to my LinkedIn follow me again Darren glean is My name d a r r en glean or you can actually call or text me at 646 734235 um um but again my LinkedIn profile or my website yeah we'll get it in the show notes man yeah thank you again for jumping on and and sharing your knowledge looking forward to seeing how the program grows and you know who else Embraces this structure here over time yeah it's exciting I appreciate it thanks Rob

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