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Victory Metals & Nevada King Agree to Business Combination, Creating a Leading Nevada Gold Explorer and Developer

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The business combination (the “Transaction“) will be completed pursuant to a statutory plan of arrangement whereby all of the outstanding Nevada King Shares will be exchanged for common shares of Victory (the “Victory Shares“). The shareholders of Nevada King will hold 50% of the issued and outstanding Victory Shares following completion of the Transaction (the “Exchange Ratio“).

Additionally, a key condition to the completion of the Transaction is to complete a minimum $8 million non-brokered private placement (the “Private Placement“). The Private Placement will be conducted on a post-Transaction basis and, as such, the common shares of the resulting issuer (the “Company“) to be issued to subscribers of the Private Placement will not be considered in the calculation of the Exchange Ratio. Victory and Nevada King are pleased to announce that Palisades Goldcorp Ltd. (“Palisades“), a major shareholder of both Nevada King and Victory, has committed to subscribe for any portion of the Private Placement that is not taken up by other investors.

Highlights of Transaction:

  • The business combination will form a leading Nevada explorer and developer, focused exclusively on the Battle Mountain Trend, one of the world’s most endowed and prolific gold trends.
  • Nevada King is the fastest growing mineral claim holder in the United States and now ranks as Nevada’s fourth largest active claim holder with 5,985 claims totaling 115,471 acres (467 km2), with an additional 1,082 claims currently in the process of being filed. Nevada King continues to pursue its program of strategic land acquisition on the Battle Mountain Trend.
  • The transaction brings together two 100%-owned development stage assets:
    • Atlanta Gold Mine, Nevada – a past producing gold mine with recorded production of 110,000 ounces of gold and 800,000 ounces of silver (1975-1985). A recently completed National Instrument 43-101 (“NI 43-101“) compliant technical report dated October 29, 2020, by Gustavson Associates of Lakewood, Colorado, calculated a pit constrained, Measured and Indicated resource of 11 million tonnes grading 1.3 g/t Au and 11.9 g/t Ag using a 0.35 g/t Au only cut off, containing 460,000 oz Au and 4,220,000 oz Ag; and an Inferred mineral resource of 5.31 million tonnes grading 0.83 g/t Au and 7.3 g/t Ag, containing 142,000 oz Au and 1,240,000 oz Ag (see Table 1-1).
    • Iron Point Vanadium/Gold Project, NevadaNorth America’s largest mineralized vanadium footprint in a shallow, open-pittable configuration, currently moving towards a maiden NI 43-101 resource and Preliminary Economic Assessment, as well as a deep Carlin-style gold target currently being explored by joint venture partner Ethos Gold Corp.
  • These core assets are combined with a portfolio of district-scale exploration projects in the heart of the Battle Mountain Trend including Golconda Gold, Horse Mountain-Mill Creek, Lewis, Hilltop South, Buffalo Valley, Cedars-Carico Lake, Kobeh Valley, and Evana (see Figure 1). These projects have seen significant historic exploration by numerous major mining companies and in many cases, are nearby or adjacent to large gold resources or operating mines.

Figure 1: The combined Nevada King and Victory Metals mineral claim portfolio along the Battle Mountain Trend, Nevada.

  • Importantly, advancement of this exploration and development portfolio will be managed by a highly experienced and successful team of mining entrepreneurs led by Executive Chairman Paul Matysek and Chief Executive Officer Collin Kettell. Mr. Matysek has sold his last five companies for a cumulative transaction value in excess of $2.6-billion. Mr. Kettell is the Founder and Executive Chairman of Palisades, a resource-focused merchant bank with $420-million of net assets and is Executive Chairman of New Found Gold Corp. with a current market capitalization of $600-million.
  • Dr. Quinton Hennigh and Susan Lavertu will join the board of the Company. Dr. Hennigh is a world-renowned geologist and the Founder & Chairman of Novo Resources Corp., a TSX-V focused gold explorer and developer. Ms. Lavertu has held the position as CEO of Nevada King since its inception; she is a resource investor who acts as advisor to several publicly listed resource companies.
  • Cal Herron, P.Geo., COO, will lead the Company’s technical team. Mr. Herron has over 40 years in the evaluation, design, and management of gold exploration projects, and has spent a significant portion of his career in Nevada. Dr. Quinton Hennigh and Doug Forster, P.Geo., bring significant geological and other expertise at the board level.
  • Following the completion of the Private Placement, the Company will be well financed with a minimum of $11 million in working capital.
  • On completion of the Transaction and the Private Placement, Management, Directors, and Insiders of the Company will own up to 57% of the issued and outstanding shares of the Company.

Paul Matysek, Executive Chairman of Victory, stated: “We are thrilled to transform Victory into a new Nevada-focused gold company with a diverse portfolio of development and exploration assets. Nevada King was an early mover and has been very successful in accumulating large strategic district scale gold projects in one of the best addresses globally for the discovery of large gold deposits. We are particularly impressed with their property acquisition strategy which is based on decades of on the ground experience and scientific rigor in understanding the controls of gold mineralization in the Battle Mountain Trend. The addition of Dr. Quinton Henning to the Board of the Company will be instrumental in guiding our exploration and development activities going forward. After the completion of the Transaction, our initial work will focus on 3 key areas: 1) further drilling at Altanta Mine to re-categorize resources and expand the existing gold resource: 2) at Iron Point, completing the maiden vanadium resource estimate while continuing to work with Ethos Gold to refine targeting for a deep Carlin-type deposit and 3) developing and prioritizing drilling on some of the most compelling target areas with significant gold mineralization historically identified on these project areas.”

Collin Kettell, Executive Chairman of Nevada King, stated: “We are very excited to be able to bring Nevada King’s project portfolio public through this transaction with Victory. Our team has spent five years staking and consolidating one of the largest land packages in Nevada’s Battle Mountain Trend, North America’s most endowed gold belt. We kicked off this strategy before the recent resurgence in interest in gold and were able to successfully acquire highly strategic project areas prior to the recent influx of competitors. We are particularly excited to have assembled an outstanding technical and corporate team for the advancement of this project portfolio that will now be led by Paul Matysek. With $11 million in working capital following the completion of the Transaction we will be well funded and are looking forward to kicking off multiple exploration and development initiatives.”

Atlanta Mine, Nevada

Nevada King owns 100% of the Atlanta Mine, located 100km southeast of Ely, Nevada, which is a historical gold-silver producer that currently hosts a NI 43-101 compliant mineral resource estimate constrained by a conceptual pit containing 11 million tonnes of measured and indicated resources grading 1.3g/t Au and containing 460,000 Au oz (Table 1-1). Inferred mineral resources are 5.31 million tonnes grading 0.83 g/t Au containing 142,000 Au oz. Past open pit production is reported to have been 110,000 oz Au and 800,000 oz. Ag (1975 – 1985). Exploration activities are currently covered by a BLM-approved Plan of Operations. Existing infrastructure includes electricity to the mine, phone/internet communications, access via a graded county road, and abundant water supply. The resource area remains open for expansion through further drilling.

  • 2020 Updated Mineral Resource Estimate

Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability.  There is no certainty that the Mineral Resources will be converted to Mineral Reserves. The quantity and grade are estimates and are rounded to reflect the fact that it is an approximation. Quantities may not sum due to rounding.

Kevin Francis, SME RM, of Gustavson Associates is the Qualified Person with responsibility for the mineral resource estimate. Mineral Resources do not have modifying factors or dilution applied. Mineral Resources are presented at a 0.35 ppm gold only cutoff grade and constrained by a pit optimization shell developed at US $1500/ oz Au.

In the previous report, written in 2013, no economic pit GFN was applied to constrain the mineral resource estimate. Gustavson believes that this most recent presentation better represents a ‘reasonable prospects for economic extraction’. There is additional mineralized material indicated by the exploration and estimation process that exists outside the pit optimization shell. However, this material is not considered a Mineral Resource with current economic parameters in this report.

The 2021 exploration plan anticipates a US $2.5M expenditure designed to complete a Preliminary Economic Assessment (PEA) that includes metallurgical testing, 9000m of RC and core drilling, and an ambitious geophysical program. Most of the drilling is dedicated to expanding the existing Inferred mineralization eastward and northward of the pit constrained resource zone and at the same time converting Inferred to Measured-Indicated. The wide-ranging geophysical studies and soil sampling program seek to identify new gold targets elsewhere in the Atlanta District, which is in large part covered by alluvium and post-mineral volcanics.

Iron Point, Nevada

The Iron Point Project encompasses 12,822 acres and is located 22 miles east of Winnemucca, Nevada. The project area adjoins Interstate 80, is bisected by high voltage electric power lines, and is traversed by the Union Pacific railroad line across the northern property boundary. The primary gold target is Carlin-type gold mineralization hosted in Lower Plate carbonate stratigraphy below the Roberts Mountain thrust fault. Some of the world’s largest and highest-grade gold deposits are found in this Lower Plate Assemblage. The linear target zone coincides with a north-south striking range front fault that hosts strong Carlin-type gold pathfinder geochemistry along a 5km strike length. Based on previous drilling, significant gold mineralization in Upper Plate rocks typically starts at depths exceeding 100m. Ethos Gold’s 2019 drilling program penetrated the Roberts Mountain Thrust and encountered gold mineralization in Lower Plate carbonates in core hole VM-8C, bottoming  at 710m depth in 5.8m grading 0.165ppm Au accompanied by elevated As, Sb, and Hg (true mineralized thickness unknown).  On the heels of a district-scale geophysical program completed in late 2020, Ethos seeks to expand upon this deep gold intercept in its planned 2021 drilling program.

Board of Directors and Management:

Following completion of the Transaction, the Company’s board of directors will consist of Victory’s current board of directors (Paul Matysek (Executive Chairman), Collin Kettell, Douglas Forster, P.Geo. and Craig Roberts, P.Eng.) supplemented by Susan Lavertu, current CEO of Nevada King, and Dr. Quinton Hennigh, presently an advisor to Nevada King. Management of the Company will continue to be led by Victory’s current senior management team with the addition of Susan Lavertu as President of the Company.

Paul Matysek, M.Sc., Executive Chairman –

Mr. Matysek is a geologist/geochemist by training, a successful alpha entrepreneur and creator of shareholder value with over 40 years of experience in the mining industry. Since 2004 as either CEO or Executive Chairman, Mr. Matysek has sold five publicly listed exploration and development companies, in aggregate worth over $2 billion. Most recently, he was Executive Chairman of Lithium X Energy Corp., which was sold to Nextview New Energy Lion Hong Kong Limited for $265 million in cash. Mr. Matysek was President and CEO of Goldrock Mines Corp., which sold to Fortuna Silver Mines in July 2016. He was previously CEO of Lithium One, which merged with Galaxy Resources of Australia to create a multi-billion-dollar integrated lithium company. He served as CEO of Potash One, which was acquired by K+S Ag for $434-million cash in a friendly takeover in 2011. Mr. Matysek was also the co-founder and CEO of Energy Metals Corp., a uranium company that grew from a market capitalization of $10 million in 2004 to approximately $1.8 billion when sold in 2007.

Collin Kettell, Chief Executive Officer & Director –

Mr. Kettell is Founder & Executive Chairman of Palisades, Canada’s resource focused merchant bank, with current AUM of $420M. Collin comes from a family with deep ties to mining, including co-founding AuEx Ventures, the company responsible for discovering the Long Canyon deposit, a project ultimately acquired by Newmont for $2.3B. Mr. Kettell is also the Founder & Executive Chairman of New Found Gold Corp., which is currently exploring its flagship Queensway Project in Newfoundland; Co-Founder of Goldspot Discoveries (TSXV: SPOT).

Susan Lavertu, President & Director 

Ms. Lavertu is the President & CEO of Nevada King since its inception, where she has been instrumental in organizing financing, advancing operations, and directing the overall strategy of the company. Ms. Lavertu is a private resource focused investor. She acts in the capacity as advisor to several TSX-V listed mining companies. Prior to working in the resource sector, Ms. Lavertu worked in marketing and online marketing in North America and Europe.

Bassam Moubarak, CPA, Chief Financial Officer –

Mr. Moubarak is a seasoned senior executive with over 10 years of experience in the mining industry. Most recently, Mr. Moubarak was chief financial officer of Lithium X Energy Corp., where he played a key role in its sale to NextView New Energy Lion Hong Kong Ltd. for $265-million. Prior to this, Mr. Moubarak was chief financial officer of Goldrock Mines Corp., where he played a key role in its sale to Fortuna Silver Mines Inc. for $180-million. He was chief financial officer of Petaquilla Minerals Ltd., where he was instrumental in raising in excess of $120-million to develop and bring into production the Molejon gold mine. He also played a key role in the sale of Petaquilla Copper Ltd. to Inmet Mining Corp. for $400-million and negotiated the sale of Golden Arrow Resources Corp.’s 1-per-cent net smelter return royalty on the Gualcamayo gold mine to Premier Royalty Inc. for $17.75-million. Mr. Moubarak is a chartered professional accountant and was previously a senior manager with the international accounting firm Deloitte LLP, where he led audits of public companies and oversaw SOX 404 implementations, with specific emphasis on the mining industry.

Cal Herron, P.Geo., Chief Operating Officer –

Mr. Herron acts as Chief Operating Officer for Nevada King since its inception. Mr. Herron is President of Quest Geological Consultants, a geo-consultancy group focused on minerals exploration in North America. Cal has over 40 years’ experience in the evaluation, design, and management of base and precious metals exploration projects in the United States and Asia. M.A. in Geology from California State University (1981); Professional Geoscientist (P. Geo.) registered in Ontario, Canada with APGO.

Doug Forster, M.Sc., P.Geo., Director –

Mr. Forster has been involved in the mining industry and capital markets for over 35 years having acted as geologist, company founder, director, senior executive, and financier. Mr. Forster was a founder, President and CEO of Newmarket Gold which was acquired by Kirkland Lake Gold in a $1 billion transaction in 2016. Doug has a proven track record in mergers and acquisitions, mine operations, resource project development and equity and debt financing. For over three decades Mr. Forster has been creating wealth for North American and International investors through natural resource discovery, exploration, and operations. Mr. Forster obtained his B.Sc. and M.Sc. in geological sciences from the University of British Columbia and he is a registered member of the Association of Professional Engineers and Geoscientists of British Columbia.

Craig Roberts, B.A.Sc., M.Phil., P.Eng., Director –

Mr. Roberts is a mining engineer with 35 years of operations, consulting, and investment banking experience. For the last 20 years Mr. Roberts has worked as a mining investment banker with First Marathon Securities, National Bank Financial, PI Financial, and Axemen Resource Capital, focused on institutional equity financing and merger and acquisition advisory mandates in the mining sector. Previous to this Mr. Roberts worked seven years with Wright Engineers/Fluor Corporation, focused on feasibility studies of various mining projects worldwide. Prior to this Mr. Roberts worked for five years in underground mining operations. Mr. Roberts holds a B.A.Sc. degree in Mining Engineering from UBC, an M.Phil. in Management Studies from Oxford University, and is registered as a Professional Engineer (Mining) in British Columbia. Mr. Roberts has taught mining engineering courses at UBC and is former Chair of the Mineral Economics Society of the Canadian Institute of Mining, Metallurgy, and Petroleum.  He is currently CEO of New Found Gold Corp. and Ethos Gold Corp.

Dr. Quinton Hennigh, Director –

Dr. Hennigh is an economic geologist with 25 years of exploration experience, mainly gold related.  Early in his career, he explored for major mining firms including Homestake Mining Company, Newcrest Mining Ltd and Newmont Mining Corporation.  Dr. Hennigh joined the junior mining sector in 2007 and has been involved with a number of Canadian listed gold companies including Gold Canyon Resources where he led exploration at the Springpole alkaline gold project near Red Lake Ontario, a 5 million ounce gold asset that was recently sold.  In 2010, Dr. Hennigh helped start Novo Resources and began assembling its Australian exploration portfolio. Dr. Hennigh obtained a Ph.D. in Geology/Geochemistry from the Colorado School of Mines.

Further Transaction Details:

The boards of directors of Victory and Nevada King have unanimously approved the Agreement and the terms of the Transaction. Given the related party nature of the transaction, certain directors of Victory and Nevada King abstained from voting on the Transaction. The parties intend to enter into a definitive arrangement agreement (the “Arrangement Agreement“) in the near future, which will set out the detailed terms of the Transaction.

The key conditions to the completion of the Transaction are approval of the plan of arrangement by the shareholders of Nevada King, approval of the issuance of the Victory Shares to the Nevada King shareholders and certain other matters by the shareholders of Victory, court approval, approval of the TSX Venture Exchange, completion of the Private Placement and other conditions customary for a transaction of this nature. No finder’s fee is payable in connection with the Transaction.

The transaction is a “business combination” subject to Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (“ MI-61-101“). MI-61-101 provides that, in certain circumstances, where a “related party” (as defined in  MI-61-101) of an issuer is acquiring the issuer, such transaction may be considered a “business combination” for the purposes of  MI-61-101 and may be subject to minority shareholder approval, formal valuation and other requirements. Palisades is both a major shareholder of Victory and Nevada King, holding approximately 50% of the Victory Shares and 46% of the Nevada King Shares.  Consequently, minority shareholder approval of the Victory shareholders will be required for the Transaction.  It is expected that the Transaction will be exempt form the formal valuation requirement of  MI-61-101 as Victory is not listed on a specified market set out in section 4.4(1)(a) of  MI-61-101.

The Company will be seeking TSX Venture Exchange approval as soon as practicable and expects the transaction to be a “fundamental acquisition” and subject to TSX Venture Exchange policy 5.3.

Full details of the Transaction, including the Company’s assumption of any liabilities of Nevada King, will be included in the Arrangement Agreement and materials to be mailed to the shareholders of Victory and Nevada King for the shareholder meetings required in connection with the Transaction.

Fort Capital Partners acted as financial advisor to the Special Committee and board of directors of Victory and provided an oral report, subject to certain assumptions, that the Transaction is fair to the shareholders of Victory.

Further Private Placement Details

The Company intends to satisfy the Private Placement condition by raising a minimum of $8 million by way of non-brokered private placement financing priced at $0.55 per share of the Company. The Private Placement will be closed in conjunction with the completion of the Transaction with the investors funds being released to the Company at that time. Use of funds will include advancement of the Company’s development and exploration stage assets. Palisades, a resource focused merchant bank, has committed to subscribe for any portion of the Private Placement that is not taken up by other investors.

Qualified Person

The scientific and technical information in this news release has been reviewed and approved by Calvin R. Herron, P.Geo., who is a Qualified Person as defined by NI 43-101.

The technical information surrounding the recently released NI 43-101 compliant mineral resource for the Atlanta Mine has been reviewed and approved by Kevin Francis, SME RM, who is a Qualified Person as defined by NI 43-101.

About Victory

Victory owns a 100% interest in the Iron Point Vanadium Project, located 22 miles east of Winnemucca, Nevada. The project is located within a few miles of Interstate 80, has high voltage electric power lines running through the project area and a railroad line passing across the northern property boundary. The Company is well financed to advance the project through resource estimation and initial feasibility study work. Victory has a proven capital markets and mining team led by Executive Chairman Paul Matysek. Major shareholders include Palisades ([50]%), and management, directors and founders (27%). Approximately 28% of the Company’s issued and outstanding shares are subject to an escrow release over the next two years.

Please see the Company’s website at www.victorymetals.ca.

About Nevada King

Nevada King is the fourth largest mineral claim holder in the State of Nevada, and the fastest growing mineral claim holder in the United States. Nevada King owns 100% of the Atlanta Mine, located 100km southeast of Ely, Nevada, which is a historical gold-silver producer that currently hosts a NI43-101 compliant mineral resource estimate constrained by a conceptual pit containing 11 million tonnes of measured and indicated resources grading 1.3g/t Au and containing 460,000 Au oz (Table 1-1). Inferred mineral resources are 5.31 million tonnes grading 0.83 g/t Au containing 142,000 Au oz. Past open pit production is reported to have been 110,000 oz Au and 800,000 oz. Ag (1975 – 1985). Exploration activities are currently covered by a BLM-approved Plan of Operations. Existing infrastructure includes electricity to the mine, phone/internet communications, access via a graded county road, and abundant water supply. The resource area remains open for expansion through further drilling.

Please see the Company’s website at www.nevadaking.ca

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Cautionary Statements Regarding Forward Looking Information

This news release contains certain “forward-looking information” and “forward-looking statements” (collectively “forward-looking statements”) within the meaning of applicable securities legislation. All statements, other than statements of historical fact, included herein, without limitation, statements relating the future operations and activities of the Company, are forward-looking statements. Forward-looking statements are frequently, but not always, identified by words such as “expects”, “anticipates”, “believes”, “intends”, “estimates”, “potential”, “possible”, and similar expressions, or statements that events, conditions, or results “will”, “may”, “could”, or” should” occur or be achieved. Forward-looking statements in this news release relate to, among other things, statements relating the terms of the Transaction; the terms of the Private Placement, managements expectations regarding the Transaction, the terms of the Arrangement Agreement, the Company’s future outlook and anticipated events or results; and the completion of the Transaction. Actual future results may differ materially. There can be no assurance that such statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such statements. Forward-looking statements reflect the beliefs, opinions and projections on the date the statements are made and are based upon a number of assumptions and estimates that, while considered reasonable by the Victory, are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies. Many factors, both known and unknown, could cause actual results, performance or achievements to be materially different from the results, performance or achievements that are or may be expressed or implied by such forward-looking statements and the parties have made assumptions and estimates based on or related to many of these factors. Such factors include, without limitation, the Victory’s failure to complete the Transaction, the failure or Victory shareholders or Nevada King shareholders to approve the transaction, the failure of the TSX Venture Exchange to approve the Transaction and the Private Placement and management’s discretion to reallocate the use of proceeds. Readers should not place undue reliance on the forward-looking statements and information contained in this news release concerning these items. Victory does not assume any obligation to update the forward-looking statements of beliefs, opinions, projections, or other factors, should they change, except as required by applicable securities laws.

SOURCE Victory Metals Inc

Business

LPL Financial to Acquire Waddell & Reed’s Wealth Management Business and Enter Into Long-Term Partnership With Macquarie

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Macquarie to acquire Waddell & Reed Financial, Inc. and upon closing sell
Waddell & Reed’s wealth management business to LPL Financial for $300 million

Long-term partnership between LPL Financial and Macquarie will provide existing
Waddell & Reed advisors and clients with continuity, as well as longer-term opportunities through partnership with a leading international asset manager

SAN DIEGO, Dec. 02, 2020 (GLOBE NEWSWIRE) — LPL Financial Holdings Inc. (Nasdaq: LPLA) (“LPL Financial” or “LPL”), a leading U.S. retail investment advisory firm, independent broker-dealer, and registered investment advisor (RIA) custodian, today announced it has entered into an agreement with Macquarie Asset Management (“Macquarie”), the asset management division of Macquarie Group (ASX: MQG; ADR: MQBKY), to acquire the wealth management business of Waddell & Reed Financial, Inc. (NYSE: WDR) (“Waddell & Reed”), upon completion of Macquarie’s acquisition of all of the issued and outstanding common shares of Waddell & Reed. Additionally, LPL and Macquarie have agreed to enter into a long-term partnership, with Macquarie becoming one of LPL’s top tier strategic asset management partners.

Through its subsidiaries, Waddell & Reed has provided investment management and wealth management services to clients throughout the U.S. since 1937. Today, investment products are distributed under the Ivy Investments ® brand, as well as through independent financial advisors associated with Waddell & Reed, Inc. As of September 30, 2020, Waddell & Reed’s wealth management business had assets under administration of approximately $63 billion, up 10% year-over-year.

Dan Arnold, President and Chief Executive Officer of LPL Financial said: “Waddell & Reed advisors are highly experienced and well-respected throughout the industry. They are a terrific fit both culturally and strategically, and we welcome them to the LPL family. Looking ahead, we expect our capabilities and resources will benefit their practices and help them unlock additional value and growth. Additionally, we look forward to deepening our long-term partnership with Macquarie, which will help us preserve unique aspects of the Waddell & Reed advisor experience while also positioning us to explore additional long-term opportunities together.”

Philip J. Sanders, Chief Executive Officer of Waddell & Reed, said: “Over the past few years, we have been focused on leveraging our strong heritage as the foundation for transforming our firm into a more diversified and growth-oriented financial services enterprise. The long-term partnership between LPL and Macquarie as part of this transaction accelerates that transformation and ultimately will benefit our clients and independent financial advisors while delivering significant value to our stockholders.”

Martin Stanley, Head of Macquarie Asset Management, said: “The addition of Waddell & Reed Financial and our enhanced partnership with LPL will significantly increase our ability to grow and invest in our combined business for the benefit of our clients. Ivy Investments’ complementary investment capabilities will provide diversification to Macquarie Asset Management’s capabilities and client base. The consideration offered reflects the quality of Waddell & Reed’s business and the future benefits of our partnership with LPL.”

Shawn Lytle, President of Delaware Funds by Macquarie and Head of Macquarie Group in the Americas, added: “This transaction is an important step forward in our growth strategy for Delaware Funds by Macquarie. The acquisition of Waddell & Reed’s asset management business and our partnership with LPL significantly strengthens our position as a top 25(1) US actively managed, long-term, open-ended mutual fund manager across equities, fixed income and multi asset solutions.”

The transaction has been approved by the Boards of Directors of LPL Financial, Macquarie Group, and Waddell & Reed and is expected to close in the middle of 2021, subject to regulatory approvals, Waddell & Reed stockholder approval, and other customary closing conditions.

LPL Financial posted an investor presentation with an overview of the transaction on its Investor Relations page at investor.lpl.com.

Centerview Partners LLC served as exclusive financial advisor and Ropes & Gray LLP served as exclusive legal advisor to LPL in connection with the transaction.

About LPL Financial
LPL Financial (https://www.lpl.com) is a leader in the retail financial advice market, the nation’s largest independent broker/dealer(+) and a leading custodian (or provider of custodial services) to RIAs. We serve independent financial advisors and financial institutions, providing them with the technology, research, clearing and compliance services, and practice management programs they need to create and grow thriving practices. LPL enables them to provide objective guidance to millions of American families seeking wealth management, retirement planning, financial planning and asset management solutions.

(+)Based on total revenues, Financial Planning magazine June 1996-2020.

Securities and Advisory Services offered through LPL Financial LLC, a Registered Investment Advisor. Member FINRA/SIPC. We routinely disclose information that may be important to shareholders in the “Investor Relations” or “Press Releases” section of our website.

About Waddell & Reed Financial
Through its subsidiaries, Waddell & Reed Financial, Inc. has provided investment management and wealth management services to clients throughout the United States since 1937. Today, Waddell & Reed Financial distributes its investment products through the unaffiliated channel under the Ivy Investments® brand (encompassing broker/dealer, retirement, and registered investment advisors), its wealth management channel (through independent financial advisors associated with Waddell & Reed, Inc.), and its institutional channel (including defined benefit plans, pension plans, endowments and subadvisory relationships). For more information, visit ir.waddell.com.

About Macquarie Asset Management
Macquarie Asset Management (MAM) is Macquarie’s asset management business. MAM is a full-service asset manager, providing investment solutions to clients across a range of capabilities including infrastructure & renewables, real estate, agriculture, transportation finance, private credit, equities, fixed income, and multi-asset solutions. As of September 30, 2020, MAM had $A554.9 billion of assets under management. MAM has over 1,900 staff operating across 20 markets in Australia, the Americas, Europe and Asia. MAM has been managing assets for institutional and retail investors since 1980 in Australia and 1929 in the US, through a predecessor firm, formerly known as Delaware Investments.

(1) Source: Assets under management as of Sept. 30 – Based on data represented in Strategic Insight and Morningstar. Data includes ICI Method of Sales: Salesforce, Institutional and Retirement. Data excludes Variable Insurance Products, Closed End Funds, ETFs, passive mutual funds, Money Market Funds, Delaware Pooled Trusts, and Optimum Funds.

Forward-Looking Statements
Statements in this press release regarding LPL Financial Holdings Inc. (together with its subsidiaries, including LPL Financial LLC, the “Company” or “LPL Financial”) and its potential growth, business strategy and plans, including the expected benefits of Macquarie Group’s acquisition of Waddell & Reed Financial, Inc. (together with its subsidiaries, “Waddell & Reed”) and LPL Financial’s acquisition of Waddell & Reed’s wealth management business and partnership with Macquarie Group, as well as any other statements that are not related to present facts or current conditions or that are not purely historical, constitute forward-looking statements. These forward-looking statements are based on the historical performance of the Company and Waddell & Reed and the Company’s plans, estimates and expectations as of December 2, 2020. Forward-looking statements are not guarantees that the future results, plans, intentions or expectations expressed or implied by the Company will be achieved. Matters subject to forward-looking statements involve known and unknown risks and uncertainties, including economic, legislative, regulatory, competitive and other factors, which may cause levels of assets serviced, actual financial or operating results, levels of activity or the timing of events to be materially different than those expressed or implied by forward-looking statements. In particular, the Company can provide no assurance that the assets reported as serviced by financial advisors affiliated with Waddell & Reed (“Waddell & Reed Advisors”) will translate into assets serviced by LPL Financial, that Waddell & Reed Advisors will join LPL Financial, or that the benefits that are expected to accrue to LPL Financial, Waddell & Reed, Macquarie Group and their respective advisors and stockholders as a result of the transactions described herein will materialize. Important factors that could cause or contribute to such differences include: failure of the parties to satisfy the closing conditions applicable to the acquisitions described herein in a timely manner or at all, including the completion of the acquisition of Waddell & Reed by Macquarie Group, obtaining the required stockholder and regulatory approvals, and the retention by Waddell & Reed of minimum assets prior to closing; disruptions to the parties’ businesses as a result of the announcement and pendency of the transactions, difficulties and delays in recruiting Waddell & Reed Advisors or onboarding the clients or businesses of Waddell & Reed Advisors; the inability by the Company to sustain revenue and earnings growth or to fully realize revenue or expense synergies or the other expected benefits of the transactions, which depend in part on the Company’s success in onboarding assets currently served by Waddell & Reed Advisors; disruptions of the Company’s or Waddell & Reed’s business due to transaction-related uncertainty or other factors making it more difficult to maintain relationships with its financial advisors and their clients, employees, other business partners or governmental entities; the inability to implement onboarding plans and other consequences associated with acquisitions; the choice by clients of Waddell & Reed Advisors not to open brokerage and/or advisory accounts at LPL Financial or move their assets from Waddell & Reed to LPL Financial; unforeseen liabilities arising from the acquisition of Waddell & Reed’s wealth management subsidiaries; changes in general economic and financial market conditions, including retail investor sentiment; fluctuations in the value of assets under custody; effects of competition in the financial services industry, including competitors’ success in recruiting Waddell & Reed Advisors; and the other factors set forth in Part I, “Item 1A. Risk Factors” in the Company’s 2019 Annual Report on Form 10-K and any subsequent SEC filing. Except as required by law, the Company specifically disclaims any obligation to update any forward-looking statements as a result of developments occurring after the date of this press release, even if its estimates change, and you should not rely on those statements as representing the Company’s views as of any date subsequent to the date of December 2, 2020.

Investor Relations:
Chris Koegel
617-897-4574
Chris.Koegel@lpl.com

Media Relations:
Jeffrey Mochal
704-733-3589
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4Front Announces Third Quarter 2020 Results and Business Update

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  • Q3 Systemwide Pro Forma Revenue increased 18% quarter-over-quarter to $22.3 million, 170% year-over-year – Company became cash flow positive from operations in August
  • Company sale leaseback transaction with Innovative Industrial Properties scheduled to close within two weeks. As a result of close, together with proceeds from the recently closed bought deal financing, the Company will have $16 million of cash and $43 million in long-term debt
  • Company is in the process of acquiring acreage to construct up to 210,000 square feet of flowering canopy and supporting manufacturing facility in Cook County, Illinois to exponentially increase capacity in state
  • Initial guidance for 2021 with Systemwide Pro Forma Revenue of $170-180 million and Adjusted EBITDA of $40-50 million
  • The Company’s existing projects at maturity represent a long-term revenue and EBITDA opportunity upwards of $650 million and $250 million

PHOENIX, Nov. 30, 2020 /PRNewswire/ – 4Front Ventures Corp. (CSE: FFNT) (OTCQX: FFNTF) (“4Front” or the “Company“) today announced its financial results for the third quarter of 2020. All financial information is presented in U.S. dollars unless otherwise indicated.

Third Quarter 2020 Financial Results Highlights

  • Systemwide Pro Forma Revenue for the third quarter 2020 increased 18% quarter-over-quarter to $22.3 million
  • IFRS Sales for the third quarter of 2020 increased by 25% quarter-over-quarter to $12.4 million
  • Adjusted EBITDA for the third quarter was $3.7 million

Business Updates and Developments

Q3 2020 Systemwide Pro Forma Revenue increased 18% quarter over quarter to $22.3 million.  Robust revenue trends continued across the portfolio led by the launch of recreational sales in Massachusetts in the quarter and the re-opening of Mission South Chicago in late July.  Washington state experienced record sales in the quarter while increasing prices.  The Company achieved positive operating cash flow beginning in the month of August 2020 and is poised to show significant operating leverage in 2021.

Strong balance sheet supports continued growth in 2020 through 2021.  As of September 30, 2020, 4Front’s balance sheet had cash and equivalents of $8.5 million with total debt of $76.5 million (excluding in-the-money convertible debt of $5.8 million). On November 23, 2020, the Company closed an oversubscribed bought deal led by Beacon Securities for US$13.2 million.  The Company also announced it entered into definitive purchase and sale agreements with an affiliate of Innovative Industrial Properties, Inc., providing for the sale and leaseback of 4Front’s cultivation and production facilities in Tumwater, Washington and Georgetown, Massachusetts. The all-cash sale price of $30 million is on-track to close by mid-December and will be used by the Company to pay down the outstanding senior secured debt obligation to affiliates of Gotham Green Partners. As of November 30, 2020, pro forma for the close of the pending sale-leaseback transaction and including proceeds from the recently closed bought deal financing, the Company will have approximately $16 million of cash and $43 million of long-term debt due May 2024.

Company is finalizing plans to exponentially expand its cultivation and manufacturing presence in Illinois.  The Company has one of 20 cultivation licenses in Illinois that allows for 210,000 square feet of flowering canopy and is currently acquiring acreage for construction of a cultivation facility and state of the art manufacturing facility, adding significant blue sky to its already established presence in Illinois

Final stages in construction of 185,000 square foot manufacturing facility in Commerce, California underway with completion scheduled for Q2 2021.  The Company’s fully funded state of the art 185,000 square foot manufacturing only facility in Commerce, California is nearing completion and should be ready to serve the $3 billion California cannabis market in Q2 2021. The project is on target to be completed in April 2021 with the Company planning for the first of its full line of edibles, tinctures and vape products to be on California retail shelves by May 2021.

Cultivation facility expansion completed in Illinois. Massachusetts facility retrofitting enters final phased approach.   The Company’s expansion at its Elk Grove, Illinois cultivation facility, which will increase the flowering canopy from 3,000 to 9,072 square feet, is substantially completed on time and under budget. The retrofitting of the Company’s Georgetown facility is complete and ready for the phased installation of LED lights, which are expected to increase yields by 35 – 50%.  In the quarter, weighted average annualized yields from flowering canopy across the portfolio was 319 grams per square foot.

Q4 opening of second Illinois retail location in Calumet City remains on schedule. Construction of the dispensary is substantially completed as the Company is set to open its second Illinois retail location in Calumet City (approximately one mile from the Indiana border) in December 2020.  Final inspection is scheduled for December 8 with a Grand Opening currently anticipated on December 15, 2020.  

Initial guidance for 2021 with Systemwide Pro Forma Revenue of $170-180 million and Adjusted EBITDA of $40-50 million.  This guidance is fully funded and contemplates only current operations including December opening of the Calumet City retail location plus the opening of a Brookline, Massachusetts dispensary and the Commerce production facility in May 2021.  This guidance includes facilities scheduled to open in 2021.  If such openings are delayed due to Covid-19, guidance could be negatively affected.

Management Commentary

Leo Gontmakher, CEO of 4Front, said, “We are incredibly pleased with our third quarter 2020 results that reflect the Company’s laser focus on execution.  We have big plans for our platform, but it all starts with operational excellence and delivering to shareholders what we say we are going to deliver.  While we have much more to accomplish, the hard work of our team has set the table for what I expect to be an exciting year for our company in 2021. With 4Front’s constant operational improvements and an expected strong year for the cannabis industry overall, we are pleased to provide Covid-qualified initial 2021 guidance of $170$180 million in Pro Forma Systemwide Revenue and $40$50 million in Adjusted EBITDA, with the longer-term opportunity in our current geographical footprint upwards of $650 million in revenue and $250 million in EBITDA.

Mr. Gontmakher added, “In addition to the strong fundamentals across our legacy markets, plus an encouraging regulatory environment, we are excited to announce the timing of our entry into California and will soon provide details about our aggressive expansion plans in Illinois, projected to be a multi-billion, medical and adult-use market.

“In summary,” said Gontmakher, “achieving robust expansion and sustained profitability through our low-cost production model has proven to be both replicable and scalable across key US cannabis markets positioning 4Front as a major MSO player. With the completion of our bought deal financing, as well as the sale-leaseback transaction, 4Front will end the year with a strong balance sheet providing the financial stability to expand the business in our key target states.”

(Please see Note Regarding Non-IFRS Measures, Reconciliation, and Discussion below.) (*Please see the Financial Statement section below, and the Company’s Third Quarter 2020 Unaudited Condensed Consolidated Financial Statements and Management Discussion and GFN (“MD&A”), available under the Company’s SEDAR profile, for more information.)

Additional Details

As of the date of the MD&A, there were the equivalent of 534,177,375 Class A Subordinate Voting Shares outstanding when calculated as if all share classes were converted to Subordinate Voting Shares. For further details regarding 4Front’s share structure, please see its profile at www.thecse.com.

Conference Call

The Company will also host a conference call and webcast on Monday, November 30, 2020 at 5:00 p.m. ET to review its operational and financial results and provide an update on current business trends.

To join the call, dial 1-877-407-0792 toll free from the United States or Canada or 1-201-689-8263 if dialing from outside those countries. The webcast can be accessed at this link.

The call will be available for replay until Monday, December 7, 2020. To access the telephone replay, dial 1-844-512-2921 toll free from the United States and Canada, or 1-412-317-6671 if dialing from outside those countries, and use this replay pin number: 13712867.

Financial Statements

The condensed consolidated interim financial statements for the three and nine months ended September 30, 2020 and 2019, have been prepared in accordance with IAS 34 – Interim Financial Reporting. These statements have not been reviewed by an auditor.

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Condensed Consolidated Interim Statements of Financial Position

As of September 30, 2020 and December 31, 2019 (unaudited)

Amounts expressed in thousands United States dollars unless otherwise stated

 September 30, 

 December 31, 

2020

2019

ASSETS

Current assets:

Cash 

$                8,499

$                5,789

Accounts receivable

677

677

Other receivables

325

Lease receivables

11,626

9,556

Inventory

15,666

9,138

Biological assets

2,233

2,187

Notes receivable

4,138

1,871

Prepaid expenses

1,668

2,198

Total current assets

44,507

31,741

Restricted cash

2,352

Property and equipment, net

45,565

41,822

Notes receivable 

414

1,049

Lease receivables

22,186

23,944

Intangible assets

39,197

41,442

Goodwill

28,854

33,988

Right-of-use assets

25,286

20,476

Investments

759

759

Deposits

3,135

6,346

TOTAL ASSETS

$            209,903

$            203,919

LIABILITIES AND EQUITY

LIABILITIES

Current liabilities:

Accounts payable and accrued expenses

$                5,304

$                8,138

Taxes payable

7,332

1,609

Lease liability

1,499

972

Contingent consideraton payable

2,100

750

Notes payable and accrued interest

8,026

7,382

Total current liabilities

24,261

18,851

Convertible notes

43,279

35,607

Notes payable and accrued interest

45,027

44,289

Long term notes payable

1,857

1,903

Long term accounts payable

1,600

1,600

Contingent consideration payable

3,122

4,714

Deferred tax liability

2,134

Lease liability

25,391

20,976

TOTAL LIABILITIES

146,671

127,940

Equity (Deficiency)

Equity attributable to 4Front Ventures Corp.

240,268

252,656

Reserves

35,374

25,618

Deficit

(212,410)

(202,090)

Non-controlling interest

(205)

TOTAL EQUITY (DEFICIENCY)

63,232

75,979

TOTAL LIABILITIES AND EQUITY (DEFICIENCY) 

$            209,903

$            203,919

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Condensed Consolidated Interim Statements of Operations and Comprehensive Loss

For The Three and Nine Months Ended September 30, 2020 and 2019 (unaudited)

Amounts expressed in thousands United States dollars unless otherwise stated

Three Months Ended

Nine Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

REVENUE

$                   12,410

$                     3,805

$                   32,132

$                     8,410

Cost of goods sold, sale of grown and manufactured products

(3,696)

(1,308)

(11,545)

(3,657)

Cost of goods sold, sale of purchased products

(2,365)

(1,519)

(7,211)

(2,195)

Gross profit before fair value adjustments

6,349

978

13,376

2,558

Realized fair value included in inventory sold

(457)

(256)

(1,030)

(368)

Unrealized fair value gain on biological assets

1,482

25

3,335

520

Gross profit

7,374

747

15,681

2,710

Real estate income

2,883

1,676

8,514

1,676

OPERATING EXPENSES

Selling and marketing expenses

4,158

4,493

15,975

7,699

General and administrative expenses

3,808

3,980

11,904

13,257

Depreciation and amortization

917

1,824

3,077

2,530

Equity based compensation

1,517

3,491

3,792

4,200

Total operating expenses

10,400

13,788

34,748

27,686

Loss from operations

(143)

(11,365)

(10,553)

(23,300)

Other income (expense)

Interest income

7

15

71

15

Interest expense

(5,794)

(2,728)

(12,747)

(3,851)

Accretion

274

605

Gain on sale of subsidiaries

4,729

15,940

Gain on restructuring of notes receivable

281

Change in fair value of derivative liability

3,035

3,035

Loss on investment

(518)

(518)

Other income

2,456

2,500

Foreign exchange gain (loss)

8

56

(10)

56

Total other income (expense)

(1,294)

378

6,078

1,755

Net loss before income taxes

(1,437)

(10,987)

(4,475)

(21,545)

Income tax (expense) benefit

(2,504)

12

(5,427)

(440)

Net loss from continuing operations

(3,941)

(10,975)

(9,902)

(21,985)

Net income (loss) from discontinued operations, net of taxes

32

(274)

(467)

(1,224)

Net loss

(3,909)

(11,249)

(10,369)

(23,209)

Net income (loss) attributable to non-controlling interest

37

(6)

(49)

(116)

Net loss attributable to shareholders

$                   (3,946)

$                 (11,243)

$                 (10,320)

$                 (23,093)

Basic and Diluted Loss Per Share

$                     (0.01)

$                     (0.02)

$                     (0.02)

$                     (0.06)

Weighted Average Number of Shares Outstanding, Basic and Diluted

503,793,796

466,668,216

517,323,350

382,932,216

Note Regarding Non-IFRS Measures, Reconciliation, and Discussion

In this press release, 4Front refers to certain non-IFRS financial measures such as Systemwide Pro Forma Revenue, Adjusted EBITDA These measures do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other issuers. 4Front defines Systemwide Pro Forma Revenue as total revenue plus revenue from entities with which the Company has a management contract, or effectively similar relationship (net of any management fee or effectively similar revenue) but does not consolidate the financial results of per IFRS 10 – Consolidated Financial Statements. 4Front considers this measure to be an appropriate indicator of the growth and scope of the business.

Adjusted EBITDA is defined by the Company as earnings before interest, taxes, depreciation and amortization less share-based compensation expense and one-time charges related to acquisition and financing related costs, excluding fair value adjustments for biological assets. 4Front considers these measures to be an important indicator of the financial strength and performance of our business.

About 4Front Ventures Corp.
4Front (CSE: FFNT) (OTCQX: FFNTF) is a national multi-state cannabis operator and retailer, with a market advantage in mass-produced, low-cost quality branded cannabis products. 4Front manufactures and distributes a portfolio of over 25 cannabis brands including Marmas, Crystal Clear, Funky Monkey, Pebbles, and the Pure Ratios wellness collection, distributed through retail outlets and their chain of strategically positioned Mission branded dispensaries.

Headquartered in Phoenix, Arizona, 4Front has operations in Illinois, Massachusetts, California, Michigan and Washington state. From plant genetics to the cannabis retail experience, 4Front’s team applies expertise across the entire cannabis value chain. For more information, visit 4Front’s website www.4frontventures.com.

This news release was prepared by management of 4Front Ventures, which takes full responsibility for its contents. The Canadian Securities Exchange (“CSE”) has not reviewed and does not accept responsibility for the adequacy of this news release. Neither the CSE nor its Regulation Services Provider (as that term is defined in the policies of the CSE) accepts responsibility for the adequacy or accuracy of this release.

This news release does not constitute an offer to sell or a solicitation of an offer to sell any of the securities in the United States.

Forward Looking Statements

Statements in this news release that are forward-looking statements are subject to various risks and uncertainties concerning the specific factors disclosed here and elsewhere in 4Front Ventures’ periodic filings with securities regulators. When used in this news release, words such as “will, could, plan, estimate, expect, intend, may, potential, believe, should,” and similar expressions, are forward-looking statements.

Forward-looking statements may include, without limitation, statements related to future developments and the business and operations of 4Front Ventures, statements regarding when or if transactions will close or if/when required conditions to closing are attained, the impact of the transactions on the business of 4Front and other statements regarding future developments of the business. The closing of the transactions described in this news release is subject to customary conditions and there can be no guarantee that such transactions will close.

Although 4Front Ventures has attempted to identify important factors that could cause actual results, performance or achievements to differ materially from those contained in the forward-looking statements, there can be other factors that cause results, performance or achievements not to be as anticipated, estimated or intended, including, but not limited to: dependence on satisfying closing conditions, [obtaining regulatory approvals]; and engagement in activities currently considered illegal under U.S. federal laws; change in laws; limited operating history; reliance on management; requirements for additional financing; competition; hindering market growth and state adoption due to inconsistent public GFN and perception of the medical-use and adult-use marijuana industry and; regulatory or political change.

There can be no assurance that such information will prove to be accurate or that management’s expectations or estimates of future developments, circumstances or results will materialize. As a result of these risks and uncertainties, the results or events predicted in these forward-looking statements may differ materially from actual results or events.

Accordingly, readers should not place undue reliance on forward-looking statements. The forward-looking statements in this news release are made as of the date of this release. 4Front Ventures disclaims any intention or obligation to update or revise such information, except as required by applicable law, and 4Front Ventures does not assume any liability for disclosure relating to any other company mentioned herein.

SOURCE 4Front

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What Business Leaders Should Know About Cryptocurrency

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ALISON BEARD:  Welcome to the HBR IdeaCast from Harvard Business Review.  I’m Alison Beard.

How do you, as a company or individual, figure out when it’s time to start paying attention to a new technology?  How do you tell whether it’s a flash in the pan or something that will actually go mainstream?  How do you learn about it?  When do you invest resources?  And how do you predict the impact it will have on your business? For many of us there’s a temptation to dismiss the latest thing.  It’s too niche or a passing fad.  But as anyone who studies business knows, those who ignore innovation tend to get trampled by them. Companies can reach a point of no return, where their unwillingness to adapt spells disaster.

Today’s guest says that cryptocurrency might just be one of those key developments that we all need to embrace and understand, as soon as possible, because it and the block chain technology behind it will fundamentally change the way we do business.  Jeff Roberts is the author of the new book, Kings of Crypto, One Startup’s Quest To Take Cryptocurrency Out of Silicon Valley and Onto Wall Street.  He’s with me now.  Hi, Jeff.

JEFF ROBERTS:  Hi Alison. Thanks for having me.

ALISON BEARD:  So cryptocurrency, Bitcoin, Altcoin, block chain, these are terms that many businesspeople hear, and their eyes kind of glaze over.  You know, they find it too complicated to learn about and understand.  Are you able to give me just a simple explanation of what cryptocurrency is and how it works?

JEFF ROBERTS:  Sure. Yeah, and I think those executives are totally in their right to have their eyes glaze over, because too often discussions of Bitcoin and block chain are put forth by people who fetishize it or have a financial interest in it.  But the reality is, it’s quite simple.

I mean, let’s start with Bitcoin.  Bitcoin is simply software. It’s a software that you download to your computer, and it keeps track of who owes which money. And the innovation of Bitcoin is, the underlying technology is block chain, and a block chain simply provides a tamperproof transaction record of where the money has moved around. And it allows any computer to verify that and to post a public record.  So that’s what it is in essence.  You hear a lot of jargon about, well, it’s in digital wallets and transfers and stuff, but essentially it’s just a software program that shows who owns which assets.

ALISON BEARD:  And Bitcoin is the most popular cryptocurrency, but there are many.  So explain that fact, the proliferation of numerous types.

JEFF ROBERTS:  Yeah, just as once upon a time there was just a handful of apps, but the underlying technology of IOS and App Stores were universal.  In this case, Bitcoin was the first major cryptocurrency and also the first widespread use of block chain technology.  Since then, however, many other currencies and other applications have borrowed the underlying principles of block chain, which once again is simply the ability to create an instant tamperproof ledger of transactions.  And so there’s now hundreds of cryptocurrencies, and then block chain technology is also used for other applications that don’t relate to money.  But still to this day, Bitcoin is by far and away the most valuable, the most important one.

ALISON BEARD:  That block chain ledger that you’re talking about, who maintains it?

JEFF ROBERTS:  I mean, that’s the radical innovation of it, it’s maintained by thousands or tens of thousands of computers around the world. So, that sort of collectively, everyone keeps up the ledger and proves that, yes, this transaction did indeed happen.  Alison paid Jeff.  There’s a transaction, and the block chain can be viewed by anyone.

If you’re really into this, you can go to sight called Block Chain Explorer, and that’s where every transaction is posted, and you can confirm it.  But the people maintaining it is a decentralized network of computers all over the world.  But the fact there’s so many computers that have to agree on what the ledger says, that’s what sort of provides the tamperproof permanent reliable technology underlying Bitcoin.

This gets a bit arcane, but the reason Bitcoin works is, if you decide to lend your computer to this mining effort, or keep maintaining the transaction, you’re also doing something else.  It’s what the computer geeks call mining.  And every ten minutes, the network issues a new bitcoin, which on the day we’re talking is worth $19,000.  So, it’s worth it to participate in it.

Once upon a time, this was just people in their home laptops doing this.  Now it’s more industrial conglomerates that have major computers to keep up with the network.  But that’s why it works, is there’s sort of a selfish interest.  If you participate in this network and maintain the ledger, you can get a reward in the form of a bitcoin, which is issued every ten minutes.

But I should add, for private systems, like Facebook’s money or central banks, you’re not going to really need this decentralized network.  You’re going to deputize sort of a few dozen trusted people to maintain the ledger with each other.

ALISON BEARD:  And the thing that makes Bitcoin so secure is that to get it in or out, you need a personal number.  Right?  And if you lose it, that’s it.

JEFF ROBERTS:  Right.  And that’s sort of the more esoteric part of Bitcoin, is to, if you want to sort of be one of the OG people, you have your own key.  You’ve got a public key and a private key.  These notions are familiar from cryptography, but basically to hack my bitcoin wallet you would need a quantum computer, which doesn’t exist yet.

But what most people do is, they rely on a service like Coin Base or Gemini or one of these other services that provide Bitcoin for you. And for Bitcoin purists who are like, oh my God, not your coins, not your keys — you’re relying on the man.  But for practical purposes, this is the easiest way to do it.

ALISON BEARD:  And companies do the same?

JEFF ROBERTS:  Yeah.  I mean, they have a situation where like when Square bought $50 million worth of Bitcoin, they’re not going to simply leave it on a USB stick in a drawer.  There’s now a growing number of custodians, in the same way like there’s an industry if you have stock certificates, you have to store them somewhere.  If you have gold bullion, someone will store it for you.  Now there’s, you know, a growing number of companies, including Coin Base, but some other ones whose whole schtick is just simply to secure it.

But as the industry gets more sophisticated, there’s now ways devised to require five different people to supply the key.  I don’t know if you know what like the Horcrux from Harry Potter is, but it’s basically like that.  That’s what professional companies do.

ALISON BEARD:  And what’s the lay of the land right now?  Who are the big players in cryptocurrency, since that’s the primary use of block chain right now?  And how is it being used?

JEFF ROBERTS:  Well, for the longest time, I mean, Bitcoin’s been around for more than ten years now, and it’s primarily belonged to the true believers and the ideologues, the sort of people who make your eyes glaze over.  But increasingly in recently years, you’re seeing mainstream players take an interest in Bitcoin.

In the past year you’ve seen Square, the big payments company, buy $50 million worth of it.  PayPal’s now providing it to everyone.  And then meanwhile on the financial side, you’ve got hedge funds, big investors, including Harvard and Princeton University, who now own Bitcoin as part of their endowments.  So as it’s driven investment, Bitcoin has really kind of become the gold standard in cryptocurrency, and there’s a big movement afoot to have people buy Bitcoin instead of gold as sort of a permanent store of value.

And some people think this is silly.  Some don’t.  But the reality is, in the top five stocks bought by Millennials last year — Charles Schwab did a survey, and unsurprisingly, you see Apple, and I think Netflix, but also in the top five is a Bitcoin stock. This reflects, I think, a younger generation’s embrace of software-based cryptocurrency as an asset to own, because it’s simply earlier to own than gold is.

Governments and regulators are getting more friendly to it, which means it’s sort of a less existential threat to Bitcoin being wiped out.  And meanwhile, even banks like JP Morgan’s CEO Jamie Dimon’s a famous skeptic.  But now, JP Morgan is providing banking services to Bitcoin companies.  So, we’re really quite a ways out than we were even three years ago when there a bubble last time around.

ALISON BEARD:  And so why is right now a moment that business leaders, managers, not just investors, should know more about crypto?

JEFF ROBERTS:  Well, I mean, I think you always have to stay up with new technology.  I mean, you know, 15 years ago it was apps.  Some people wrote those off as a fad.  And then maybe seven or eight years ago it was cloud computing and AI. And these, as with those technologies, there’s a ton of buzzwords and hype and BS surrounding them, but the reality is, you know, now AI, cloud computing and apps are part of our business life.  And likewise, the same revolution is sort of underway in the financial sector that’s sort of the plumbing that supports it. And block chain is just such a superior technology to what went before that people can’t ignore it anymore.  They might not like Bitcoin.  They might not like cryptocurrency culture, but the underlying technology is not going to go away, and it’s being embraced by more and more people.

And let me just add one more point, Alison.  The reason it’s so superior is because you can verify a transaction nearly instantly.  Right now, to move money around between central banks and big banks, or even at home, if you want to wire money, it takes three days. And it’s a cumbersome technology built on something created in think in the 1960s, the Swift system, which is a messaging system between banks.  But it’s a very antiquated one.

And right now, block chain technology is sort of poised to displace that.  And you can see that in central banks.  China is unrolling this, and I think their thing is basically live, the digital version of the yuan.  But Bank of England, Bank of Canada are doing it, and even the U.S. Treasury is exploring how this is going to work.  And finally I should add that Mastercard has got a giant program to help central banks disseminate currency using block chain.  So this isn’t going to go away, and I think business executives need to at least understand the bigger picture of how block chain works and the role of cryptocurrency within that.

ALISON BEARD:  And so even outside banks, financial institutions, whose job is the move around money and currency, retailers need to understand this.  Manufacturers need to understand it.  Sort of every industry?

JEFF ROBERTS:  Exactly, yeah. I mean, the reason why a lot of the corporate sector’s jumping in is because there’s a chance for huge savings.  Relying on the Swift system and moving money across borders is really painful.  Block chain’s going to eliminate a lot of that, and that’s why you’re seeing Facebook, they’re trying to roll out something called Libra, which is a global cryptocurrency.  It’s sort of a private form or money.

And I think we can expect Apple, which is really well poised to do that.  They’re on the cutting edge of payments.  They have a very good reputation for privacy.  So if they can simply issue a block chain based money, they haven’t said they will, but I think it’s a pretty safe bet in a couple of years, they’re going to be doing exactly that.

ALISON BEARD:  And so, rather than Bitcoin or other decentralized currencies dominating, it could be in the future that the digital yuan or the digital dollar is what’s running through the system?

JEFF ROBERTS:  Exactly, because it’s a lot more flexible to push out.  Like for instance, if we had this during the recent push for stimulus money, or PPP loans, it would have been a lot easier to administer.  There would have been less fraud.  It would have distributed a lot more quickly.  And so that’s why, you know, central banks around the world are experimenting with it.

In the case of China, there’s a dark side, though, too, because since all these currencies are traceable, China’s a surveillance state, run by a totalitarian government. So, there’s a risk in that, do you really want to have the Chinese government seeing exactly what you spend?  The nice thing about cash is, it’s quite anonymous, whereas if we go fully digital, there’s sort of a risk of surveillance.  But I think Western democracies and companies are working to build versions of this that will provide some anonymity.

ALISON BEARD:  What are some of the other risks and downsides that have made business leaders and many just individual people hesitant to embrace this trend?

JEFF ROBERTS:  Well, I think in the case of Bitcoin and cryptocurrency is, its first use was criminals.  But that’s not unusual for the Web.  I mean, like pornography’s what built a lot of innovations in payments and streaming technology on the Internet.  And likewise, Bitcoin was and is instrumental to a lot of illicit transactions.  But people who argue in favor of Bitcoin argue, and I would say correctly, that look, $100 bills, Mexican drug cartels love using American cash.  Apple gift cards, Amazon gift cards, any of this stuff can be used illicitly.

But in the case of Bitcoin, a lot of the early adopters were criminals.  That’s not really the case anymore. It’s gone mainstream.  So the reputational risk is declining. Hacking is still a risk, especially if you’re dabbling in one of these newer, more exotic cryptocurrencies.  You don’t know, you know, is someone manipulating behind the scenes?  Could it be hacked?  But in the case of the most established one, Bitcoin, at this point the network’s pretty bulletproof.

ALISON BEARD:  What about the crazy volatility that we saw in the first decade from these decentralized digital currencies?  You know, I think that’s what made it seem much more suited for speculative investors than legitimate businesses.

JEFF ROBERTS:  You know what?  I think the same, the volatility is still there, but much less so.  The first big Bitcoin bubble, the price went to $30, then plummeted to two dollars.  And ever since, there’s been these boom and bust cycles, most recently in 2017, where it hit almost $20,000 and fell to $3,000, and that was sort of a wipeout of about 85%. It’s likely we’re heading into another similar bubble.  But one thing that’s been constant is, every time it crashes, the crash has been less dramatic than the previous time in the case of Bitcoin.  Some of the other cryptocurrencies are completely worthless.  Some are not.  Currencies like Ethereum aren’t going to be part of the future.  But the volatility’s still there.

So as an investor, in the same way people invest in emerging markets, you can get a higher yield, but a higher risk.  The same is with cryptocurrency, and a growing number of people are saying, you know, OK, start dedicating maybe 2% of your portfolio to crypto.  It’s going to be volatile, but in the long run, it’s probably a good idea.  And in the case of Bitcoin, I mean, I think it’s hard to argue that over the long term, it eventually goes up again.

ALISON BEARD:  What about for corporations, though?  What percentage of their resources should they be investing in crypto, block chain, right now?

JEFF ROBERTS:  Well, I mean, I think that’s only a question of treasury management, which is above my pay grade. I’m mean, companies like Apple and Google have so much money, and they issue bonds, and they put it into money markets.  So, I know Square simply decided to invest $50 million into Bitcoin, because they think it’s a good asset to invest in.  A handful of other companies are doing the same.  And I think we’ll see more of that.  But that’s probably, you know, I think a mainstream company, like, you’re not going to see Walmart or Nike doing that.  But financial companies I think increasingly will.

But while doing that, they do have to pay attention to how people are paying, the transformation of payments that the pandemic has accelerated.  People already were moving away from cash, but now people are actually afraid of cash, because cash is dirty. The adoption of digital wallets is taking off exponentially.  And it’s going to continue to do so.  And those wallets will be tapping into things like the Visa and Mastercard networks, your bank account, but increasingly into cryptocurrency.  Next year, PayPal is going to let any merchant accept, let people pay with Bitcoin, and convert it instantly to cash.  So, this is part of the sort of payment plumbing that’s going to be here for good.

ALISON BEARD:  And you talk about Bitcoin, cryptocurrency, the block chain, also as a means of financing corporate endeavors.  So talk a little bit about that trend and how you see it developing for startups, but maybe also more established companies.

JEFF ROBERTS:  I mean, that’s where it’s going to get really interesting.  The company I write about, Coin Base, which is in North America, at least the first onramps go to Bitcoin.  Get Bitcoin, that’s probably where you’re going to go, because it operates a lot like online banking.  And they’re the sort of oldest, more respected and most sort of regulatory sound company.  But if you want to push further out, block chain technology is, you know, the people I’ve talked to say that the way companies issue shares is in the future going to be in a block chain, because it’s going to be cheaper and more efficient.

The current IPO mechanism involves a lot of clearing and waiting a day for stocks to change hands and stuff.  If you can put this all in a block chain, like companies like Coin Base want to do, that’s going to make stock trading and clearing a lot faster and cheaper.  So what’s going to get really interesting is when Coin Base goes public, what they want to do is issue tokens on a block chain as part of their offering, just as, you know, when Airbnb goes public, they issue shares, and there’s a bunch of Wall Street clearing houses that control those and keep track of them.  If you can do that on a block chain, it’s a lot more secure and efficient, and that’s, I think, what’s going to happen. But I think the SEC is still getting its head around that.

ALISON BEARD:  Yeah, so let’s talk more about regulation.  How are regulators around the world approaching both cryptocurrencies and this idea that block chain can be used for so much more?

JEFF ROBERTS:  I think that smart people at central banks really understand the technology’s potential.  But also, you know, for these central bankers work hand in glove with treasury departments, whose job is to police money laundering and crime, and those enforcement agencies — from the IRS, the FBI to the Treasury — for very good reason are watching how Bitcoin and cryptocurrency is being used to launder money and facilitate criminal payments.

So, we’re going to sort of see this tension play out where they’re going to ramp up the enforcement, which is a legitimate thing to do, while also embracing the technology to have the benefits of it.  But you know, as before, like the Internet itself at first was a haven for crime. Companies, and eventually governments, realized this technology is too useful and too important to reject.  So, they’ve come around to facilitating its legitimate use, and we’re going to see the same thing, and are seeing the same thing in the case of cryptocurrency and block chain.

ALISON BEARD:  And what are the macroeconomic, geopolitical implications of all of this?  You mentioned that China is developing its own digital currency.  So what does that mean for international business and competition?

JEFF ROBERTS: That’s a very big question, one that’s slightly above my pay grade, too.  But the short of it is, it turns around the US dollar, which is the globe’s reserve currency, and which is an immense benefit to the U.S. right now.  Along with the military, America’s most powerful asset is the fact that everyone across the globe settles their transactions in U.S. dollars.

China, who’s our geopolitical adversary, is trying to undermine that, in part by deploying digital currency, which is a lot easier and more efficient to use.  So, their digital yuan, it’s a safe bet that for their belt and road initiative, where they’re cooperating or coercing other countries in Latin America and Africa, they’re going to start pushing for those countries to start doing settlement in the digital yuan, rather than the U.S. dollar, with the long term goal of undermining the greenback’s status as the world’s reserve currency.

And very smart people at the U.S. Treasury and at the Federal Reserve are aware of this and are trying to figure out how to encourage the innovation of those with block chain without giving up the primacy of the U.S. dollar.  I do know people in the top of the Treasury, and even in the military are watching this because the threat to the US dollar is a threat to the U.S.  So, and that’s the kind of greater geopolitical game underway.

ALISON BEARD:  Everything that you’re talking about, the fact that sort of most companies need to understand this better.  Governments around the world need to understand this better.  But it remains this very niche field.  Is there a worry that there’s not enough talent to make it all happen?  Are people fighting for cryptocurrency experts, block chain experts?

JEFF ROBERTS:  Yeah, but I mean, I think, again, it helps to see it through the prism of earlier hype cycles.  Remember AI, which still is a buzzword, and companies were raiding university departments to hire their professors.  Likewise, cloud computing.  But you know, when I first started covering Bitcoin in 2013, most government officials didn’t know what it was.  People in universities didn’t know what it was.  A couple of protagonists in my book, one of them tried to write his master’s thesis on it, and his professor actually at Harvard Business School said, no, don’t do that, because this is a fad.  That was in 2014.

Now, universities across the country have block chain courses in different departments, economics and sociology, in business schools, and so the talent pipeline is certainly coming up.  And in my covering of Coin Base, they said increasingly, people applying to work there, you, their resumes say JP Morgan and Goldman Sachs.  So it’s just, I think, a generational shift as more of these courses go online, more people, more business school students embrace it.  There’s now fintech clubs at Penn and at Columbia and everywhere else.  So I think this is here to stay.  And the talent to build it is coming online every day.

ALISON BEARD:  What do you think are the biggest growth areas for cryptocurrency and block chain in the business world going forward?

JEFF ROBERTS:  Well, I mean, I think behind the scenes payments, anyone who can make payments more efficient, and there’s a ton of energy and money going into that.  I think the way we pull out cards and handing it back and forth is just unsanitary.  And it’s interesting, like in Asia, they sort of skipped a generation of payment technology, and it’s all done through phones.  And I think that’s coming here quickly.  So anyone who can make that simpler is going to be in a good position to win.  And I think in terms of making it attractive to customers, too, letting them pay however they want from Bitcoin, from their phone, that’s just going to be a part of business right now, that, I think anyone who wants, that’s sort of going to be table stakes going forward.

It’s going to be challenge for other startups to come in, because, right now, it’s going to be a battle between Coin Base and the banks, and Facebook and Apple and Square and PayPal, so it doesn’t leave a lot of room for tiny startups to come in.  The action’s going to be among the big corporates and in the government.  But I mean, I think anyone who can sort of innovate and make this more approachable and easy to use is going to probably do well.

ALISON BEARD:  So if I’m a manager at a company who’s not investing at all in cryptocurrency or block chain currently, and by investing I mean studying, putting resources behind it, to figure out how it’s going to impact your business, and I’ve bought into your case, how do I make the argument within my own company, and where do I start?  What’s my first step in introducing this to management?

JEFF ROBERTS:  I mean, yeah, I think you want to sort of start practically, because there’s no shortage of consortiums and sort of consultancies that will come in to explain you block chain for a lot of money and offer you a private block chain thing, and you’re probably, as a manager, going to write out checks for several hundred thousand dollars.  But I would start with more first principles.  I’d tell people, just get a Coin Base account, or if you don’t want to do Coin Base, there’s a company called Kraken, or Gemini.  And simply work on it.  Find out how it works.

You can also use Coin Base, which acts like an online bank, or you can get your own hardware wallet.  Those things cost about 50 bucks, and you can store your Bitcoin yourself.  And I think just let everyone try that, and move it back and forth and see how it works.  That’s probably the best way to educate people about it.

I think that’s the first step, because this isn’t going to go away, and to really underscores this.  In the last bubble in 2017, Warren Buffett called it rat poison squared.  Jamie Dimon said he would fire anyone for trading it for being an idiot and called it a fraud.  And you know, those, I think, are probably the two biggest names in American finance.  And now, you know, their tune has evolved.  Jamie Dimon still doesn’t love it, but JP Morgan’s using it.  So you know, this is not going to go away.

It’s like when the Internet came around.  There’s a lot of reason to hate the Internet.  It’s full of scams. It’s full of porn. It was full of like disreputable stuff.  But as a technology, you know, I think it would have been foolish to say, this is a fad. Likewise, you know, block chain, cryptocurrency is here to stay, so you know, whether you like it or not, you have to learn it.  And I think the more you play around with it, I think there’s a lot of really cool dimensions.  New tech is fun.  Just like apps and like cloud computing and like AI, this is another of those technologies that’s here, and rather than disdaining it or being afraid of it, try it, and then you know, make up your own mind.

ALISON BEARD: Jeff, thanks so much for being here.

JEFF ROBERTS:  Alison, thanks for having me.

ALISON BEARD:  That’s Jeff Roberts.  He’s the author of the new book, Kings of Crypto, One Startup’s Quest To Take Cryptocurrency Out of Silicon Valley and Onto Wall Street.

This episode was produced by Mary Dooe. We get technical help from Rob Eckhart. Adam Buckholts is our audio product manager.

Thanks for listening to the HBR IdeaCast. I’m Alison Beard.

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