Greenhaven Road 2Q20 Commentary: RCI Hospitality Holdings

Collectors Universe

Concurrent with these Partners Fund happy hours, I was doing diligence on a single stock special purpose vehicle (SPV) set up by Connor Haley of Alta Fox Capital. Collectors Universe (CLCT) provides third-party authentication and grading services to dealers and collectors of trading cards and coins. This was already the largest position in Connor’s fund, he was raising additional capital to invest in the opportunity via the SPV, and he was considering an activist campaign to encourage changes he believed would create substantial value. Like many interesting investments, Connor’s thesis had layers that were not obvious from the company’s historical numbers or investor relations efforts. His materials were outstanding, and his knowledge was encyclopedic, creating an attractive set-up of a motivated manager, a variant perception, and a reasonable valuation. Unfortunately, given the tight time frame and existing capital commitments, there was no practical way for the Partners Fund to invest in the SPV. However, it seemed like a wasted opportunity to just pass, so I came to Connor with a proposal to join a happy hour as a guest presenter – pitching to a group of likeminded managers who would “get it” and who – if they bought in –would be far more supportive of his agenda than the Vanguard and Blackrock ETFs which buy and hold blindly. It was a good use of time for everyone.

RCI Hospitality Holdings Inc.

We had a subsequent happy hour featuring a company of which ADW Capital/Adam Wyden owns just under 10 percent – RCI Hospitality Holdings Inc. (Nasdaq:RICK). This ~$150mm market cap upscale night club and restaurant operator had a very large short interest and simple bear case against it: in the middle of a pandemic, nobody wants to – or even can, in many cases – go to the venues. In fact, people like me would pay NOT to go in order to avoid potential COVID exposure. To complicate the story, RICK’s CEO has an unorthodox background, including a lack of traditional college degree. To say that RCI Hospitality was a contrarian idea during a pandemic would be an understatement.

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