Tag Archives: Canadian Securities Exchange Magazine

Red White & Bloom Brands: Strong brands and acquisitions underpin rapid growth strategy

Red White & Bloom Brands (CSE:RWB) is positioning itself to become one of the top three multi-state cannabis operators in the US legal cannabis and hemp sector.

On the cannabis front, Red White & Bloom is predominantly focusing investment on major markets, including Michigan, Illinois, Florida, California, Arizona and Massachusetts. For hemp-based CBD products, US and international markets both feature prominently. 

The company is also building on existing advantages through investments and pending acquisitions in Michigan and Massachusetts, plus a completed purchase in Illinois. It recently entered Florida and has been operating in California through its Platinum Vape brand for some time.

Public Entrepreneur sat down with Red White & Bloom Chief Executive Officer and Chairman Brad Rogers to find out more about his fast-growing company’s outlook and business plan.

Red White & Bloom has said its goals for the rest of 2021 are to build upon the Michigan footprint and focus on growing market share and expanding earnings. How will you achieve this? 

The plan is to grow the bottom line as vertically as we can, and obviously to cut costs where we need to. But what we’re also going to be doing is holding the price point with our brand strategy.

In Michigan, specifically, we have the biggest brand in the state, which is Platinum Vape. And we’re rolling out our High Times line there.

When you look at the potential of when commoditization happens – after October, November, December or so – what you’ll see will be prices coming down. But we’re holding our price because of our brand strategy and our distribution strategy, with respect to how we’re handling our product portfolio and product mixes into stores.

Beyond that, with operational efficiencies, as well as our best practices and buying power, we have a strategy to make sure that we’re well fortified when this stuff commoditizes, much like coffee. We’re going to be well positioned to be able to sustain pricing and increase margins as well. 

You are also looking for additional strategic relationships and to enter more US states with a “brands only” strategy that minimizes capital spending. How is this progressing?

This is going incredibly well. We’re getting a lot of interest for our brands across many states. Platinum Vape, for instance, is going into Oklahoma, and we’re also doing other brands there. High Times is now in demand too in other states, such as Nevada and the rest of California. It’s really expanding.

Red White & Bloom has closed a number of deals in a short period of time. What advantage do you have in deal-making over your competitors?

I think the real competitive advantage is the fact that this is not our first time. We’ve done this before. When you look at what I’ve done in the past, I’ve had two very successful exits on companies that I built. One of those was Mettrum, which was bought for half a billion. I took another fledgling company in the medical space in Canada from zero to about a billion and a half in market cap in about 12 months.

There’s strong belief in what we do and how we do it. What we’re also doing is fortifying our product strategy to bring in some of the players and get deals done. We make sure that they know that we know what we’re doing and that their products will have the best chance to be able to actually succeed in the market with the distribution channels we’re setting up across each state. 

And then, of course, what they get is the halo effect of all the other brands that we’re bringing in and the distribution channels that we already have. And they can build upon that as well. 

There is a lot of potential when bringing in new folks and getting new deals done that are aligned with Red White & Bloom’s strategy. 

What do you think you personally bring to the company as its CEO and chairman? 

Well, like I said, I’ve been through the wringer here before. I’ve seen the space grow from its infancy, all the way down to full commoditization in Canada, and how that affects the marketplace and the customers. And having seen this twice already, in building companies from that embryonic state to where they are now, it really gives us a good solid vision as to what’s happening. 

The Wayne Gretzky analogy I use is: “Go where the puck is going, not where the puck is.” That’s where we want to be. We want to be where the puck is going and build for that versus where the puck is right now. Because everyone’s there, everyone thinks that “If you build it, they will come,” but that’s not the case.

What’s happening is that this is going to be a commodity and your brand is going to be the only thing that you’re going to be relying on, so you need to have great product, great strategy and good distribution.

Another analogy is Starbucks. I don’t know who grows the beans, and I don’t care because it always tastes good. It’s never something you think about. Once you build a good brand, with quality, price and convenience attached to it, you’re going to be standing tall. 

And that’s what I bring to the table. I’m bringing vision and marketing and a lot of strategy with respect to where this market is going. I’ve been very successful twice at it and I think the US right now is a great place to use that experience. 

What should Red White & Bloom shareholders expect from the company for the rest of the current year and beyond? 

Well, we finally got past our pre-qualification in Michigan, which is a huge thing for our company. It means that we can actually now report revenues from Michigan on the assets that we’ve invested in. And that’s transformational for us in that our investors have not seen to date what those assets are doing because we couldn’t report them. 

Now we’re going to be able to report those earnings, as well as grow the Platinum Vape business we purchased a little while ago in San Diego. So you’ll see exponential growth in that company in Michigan and California. We’re also entering Arizona and we’ve got Florida coming as well. 

When you look at the assets in the new states that we have, and the revenue that is going to be starting in Arizona and in Florida, we’re going to be seeing some nice revenue streams, both from existing states and from new ones. We’re really excited about that. 

Overall, I think it’s about the strategy in terms of who we are, what we do, and how we do it. It all comes down to how you’re approaching the market and what you’re doing in that market. We can be asset light and brand rich, and that’s what we’re executing on right now. And it’s playing out well for us.

To create the winner that we’re going to be in the space, we’ve got some catching up to do. We’re about five years late to the market, but when you look at what we do and how we spend, we’re very judicious with our dollars and we’re making great strides with respect to how much ground we’ve covered in a very short period of time. We’re looking forward to catching up to the big boys and really being at that top echelon.

This story was featured in the Canadian Securities Exchange magazine.

Learn more about Red White & Bloom Brands at https://www.redwhitebloom.com/

Ayr Wellness: Success is the outcome when everyone buys into a great strategy

Jonathan Sandelman, Chief Executive Officer of Ayr Wellness (CSE:AYR.A), takes interviews in a decidedly different direction than most CEOs. Rather than highlighting his company’s assets and achievements, Sandelman prefers to talk about the thing that, in his mind, most determines commercial success: corporate culture.

Ayr has big goals, and with nearly US$1.5 billion in assets on its balance sheet is well on its way to achieving them. The company expands organically thanks to exceptional product quality, and also through acquisitions, which can be tricky at the best of times.

But at the end of the day, if everyone at Ayr embraces Sandelman’s philosophy, and everyone pulls in the same direction, that’s the edge needed to come out on top. It’s an old saying in the investment industry, where Sandelman rose to become President of Bank of America Securities, that if you can’t tell someone what your edge is in just a few seconds, you don’t have one. Sandelman knew what Ayr’s edge was the day he established the company.

We connected with Sandelman in early July to discuss Ayr’s growth to date and the foundations of his confidence about its future.

Ayr has a very clear vision of where it is going and how it intends to get there. Talk to us about Ayr’s mission as a company and the corporate culture you need to make it a reality.

Our goal and mission statement at Ayr is to be the largest scale producer of high-quality flower in the United States. We don’t mean to insinuate that there aren’t smaller, boutique growers that grow really high-quality flower. But in the large MSO arena, we think one of the things that differentiates our company is our cultivation of high-quality flower at large scale.

Now, why is that important? First of all, in business you need to do something that differentiates your brand. In business school, we were taught about the unique selling proposition – what differentiates your brand from all other brands?

When we think about the industry and when we listen to our competitors, they talk a lot about branding, being a CPG (consumer packaged goods) company, and they are very focused on their box. “How does my box look?”

At Ayr, we tell our teammates, those in the marketplace, and our investors that it’s not about the box, but what’s inside the box. We believe that any time you underestimate the consumer, who has choice, who has multiple alternatives to consider – and for sure this industry is going to get more competitive – when you underestimate the consumer, I don’t care what business you’re in, you’re making a mistake. Because they know.

When I started my career as an investor, I typically bought into companies I thought had the best product in that category.

A lot of people in business want to be like Nike and Apple. I don’t buy Nike because it’s in an orange box. I buy it because I’ve been a marathoner and what’s inside the box is what motivates me to buy their product. When I think about Apple, while I think they have beautiful white boxes, I buy it because it’s the best laptop or phone. If it was simply an orange box or white box without being the best product, I wouldn’t buy it.

In Pennsylvania, we had our first harvest, our first flower for wholesale and our store shelves. The market tried our product and it sold out in a week. The consumer knows. We aimed to produce the highest quality flower in a market lacking high-quality product and it sold out in a week.

And then we recently introduced our Seven Hills flower brand. Again, consumers recognized the quality of our product and it sold out in a week. That’s why our focus is on growing the best quality flower.

Acquisitions are an important part of Ayr’s growth strategy. How do you assess potential acquisitions, and how do you successfully integrate acquired businesses?

We identify early on which states we want to build our businesses in. Then we have our M&A and strategy teams go into those markets and try to find the best assets. I’ve said from day one that the way I want to build this business is to cluster and penetrate. I like contiguous states so that when the consumer travels into a nearby market, they may not know the brands, but then they see the Ayr brand and they know what that stands for. They are going to buy Ayr even when they have other choices.

Equally important, that seller, who will remain with the company in most cases, must believe in our ethos. They must believe in honesty, integrity and transparency, and have values consistent with ours.

With talent, you win. For me, the companies that have the best culture, the best vision and the best talent pool win. The perfect transaction is one where we get a great asset as well as more team members.

Ayr was incorporated in July 2017, yet you have hundreds of millions in revenue and some US$1.5 billion in assets. How did the company grow so quickly?

I’ve been an investor and an operator for more than 30 years, with a deep understanding of the capital markets. I told my investors that Ayr would be EBITDA positive and cash flow positive from day one. That’s the disciplined way to act.

We would be disciplined because we understood that the public markets are cyclical. We thought we could be more aggressive when a correction happened and assets got cheaper because we were EBITDA and cash flow positive.

That’s exactly what you saw us do. We bought our initial companies, we paused for 13 months, the correction happened, and then we got aggressive about certain companies. It’s my belief that this once-in-a-lifetime opportunity to buy assets at bargain prices will eventually go away. There will be some form of federal legalization, and then what I call the “wall of money” will come in. It will flood the market and these multiples we are buying at today will trade even higher.

We are still aggressive about buying because I don’t think this will last even another year or two. That is the thought process behind what the future will bring for Ayr.

Given your background in finance and understanding of the cannabis industry, what is your outlook for the next five years and how does that shape Ayr’s business strategy?

I expect federal legalization of this industry because it is irrational that it’s not already legal. When almost every state in the US has some type of cannabis program, does it really make sense not to be federally legal?

For those who are uncertain about cannabis, I would vote for the SAFE Banking Act because it puts controls around the industry and creates insight and transparency that doesn’t really exist on the federal level. If you bank this industry, you know all the cash flows, from where the money is coming and where the money is going.

If you think about where alcohol is trading in terms of multiples, there is a lot of upside in our industry’s multiples and in individual stock multiples.

Ayr news often highlights acquisitions or new retail locations. Talk about the team and the dedication it takes to operate successfully at the pace you set.

I’m a believer in a culture of excellence. I’ve always had this philosophy that talent is free. That whatever I pay, or our shareholders pay, the rewards they are able to produce are just spectacular. Even when we were just a two-state operator, we had some of the best EBITDA and cash flow in the industry.

I think about the vision, what talents are required, what are the job functions, and then I think about who that type of individual would be.

It’s culture. You can’t just be the smartest person in your lane, you also have to be an extremely respectful person. When we’re in a meeting and I’m pushing you, you always understand that I am not pushing you to herd you, but to get you to think at a pace, at a level that you haven’t been able to in the past.

When I hire people, I always tell them my goal is for them to say to me a year from now that they’ve become the best version of themselves. There is something about this culture and this team that inspires them to do their best work and be the best person they have ever been in business.

I think our culture is the secret asset on our balance sheet. If the 1,500th person has the same vision as the people at the top, and we have 1,500 pairs of oars all rowing in the same direction, toward the same vision, then we win.

You are talking to me for this interview, but I am getting too much credit. I am the one talking, but it’s because we have a great team. We have built the best operating system and tech stack so we integrate these companies seamlessly. The people are so talented, and the systems and controls are so good, that we make it look easy. But it’s not.

Ayr is its people, and its dedication to its teammates, to its community, to its shareholders. That’s the ethos of this company.

This story was featured in the Canadian Securities Exchange magazine.

Learn more about Ayr Wellness at http://www.ayrwellness.com

Gage Growth: The steady hand wins the race in this company’s playbook

When it comes to cannabis in the state of Michigan, Gage Growth (CSE:GAGE) is the name an increasing number of consumers are turning to. Still a young company, having been in operation for just over 18 months, Gage has nonetheless amassed one of the largest asset portfolios in the state. Experience at the leadership level is key to this success.

Gage’s Chief Executive Officer, Fabian Monaco, is a former lawyer and investment banker who was actively involved in the evolution of the cannabis industry. He was a key member of the team that transacted the first cannabis acquisition, Tweed (now known as Canopy Growth)’s purchase of Bedrocan, and also the first-ever cannabis IPO. Also on the team is cannabis impresario Bruce Linton, who serves as Chairman. Another big name is TerrAscend’s Executive Chairman Jason Wild, who has a large stake in the company.

What is it about Gage that attracts some of the most successful executives in the cannabis industry? For one, Gage is on track to be Michigan’s number one operator by the end of 2021, with 14 facilities either in operation or planned. Its first set of financial statements as a public company showed a big quarter-over-quarter jump in revenue, and a corresponding increase in its profit margin.

Clearly, the decision to start things off in Michigan was a good one.

“One of our founders is from Michigan and the other founder has a strong connection to Michigan through family,” says Monaco. “The biggest reason we chose the state, though, is that it had the second-largest medical cardholder system behind California for many years. Their caregiver program was introduced in 2008, and thanks to that, individuals have been going to dispensaries for over a decade.”

Monaco goes on to explain that close to 75% of the population in Michigan is of age to consume, and that after December 1, 2019, which was the first day of adult-use sales in the state, cannabis commerce skyrocketed. Michigan was outside the top 10 states by revenue at the time, but quickly vaulted to sixth, just behind Illinois. Today, it surpasses Illinois consistently and ranks third.

“It’s been playing out pretty much as we thought it would,” says Monaco.

In a market that size, there is bound to be healthy competition. But Gage has established some important points of differentiation and leverages them to the fullest.

“We really focus on every part of the value chain of the business, from seed to smoke,” says Monaco. “We’re constantly hunting, looking for new cultivars to bring to the table for patients and for consumers. A lot of producers out there – especially some of the publicly traded ones – don’t really grow a lot of varieties, and we pride ourselves on having 40, 50, sometimes even 60 different flavours within our retail locations for people to choose from.”

Monaco says that post-production processes are just as important, and that Gage hang-dries its product, trims it, and packages it. “We have this fun, bright, engaging packaging as well for our flower that people enjoy, and we manage most sales through our own retail channels.“

In addition to having identified a prime jurisdiction in which to operate, Gage also knows who it’s targeting to buy its products.

“In general, we’re going after the former medical user – a refined consumer, someone who has been consuming the product for many, many years,” Monaco explains. “We have a really wide variety of customers.”

The Gage business strategy calls for vertical integration and establishing operations strongly in a single state before taking its proven model and applying it in other states.

“We’re going to focus on one market for the better part of 2021, although we do anticipate doing something outside of Michigan near the end of the year,” Monaco says. “We’re trying to follow that Trulieve (Trulieve Cannabis; CSE:TRUL) model where you execute really well in one state and use that as a springboard to enter other states. Once we feel comfortable with where we’re at, especially as we approach the end of the year, you’ll see us branch out into other states.”

With expansion seemingly just around the corner, the question of where Gage will decide to go next is an obvious one. Monaco believes there is “phenomenal” opportunity throughout the United States and his team has already assessed several states this year. He says there is a lot to like. Plans call for focusing on some of the larger markets with Gage’s first few acquisitions. Massachusetts, Illinois, Ohio, Maryland, California and Pennsylvania are all in the running.

“You’ll probably see us make a move into one of the larger states pretty soon,” says Monaco.

Looking out over the next two or three years, Monaco says Gage is strongly positioned to take advantage of a wide range of opportunities that present themselves as the industry evolves.

“We have a solid cash balance to execute our plans in Michigan and didn’t really take on any harsh payment obligations, in terms of sale leasebacks or debt, over the past couple of years,” Monaco explains. “Now we have the opportunity to tap into some of the lower cost of capital opportunities that cannabis companies are seeing these days. Because our cultivation assets are unencumbered, and we own our retail locations, it really affords us the opportunity to go after some debt to fuel growth without having to dilute shareholders.”

From an earnings perspective, Monaco believes Gage can both increase revenue and expand margins rapidly, because Gage products so frequently sell out.

As for the higher goals, Gage is probably not all that far from achieving some of them already, though the walk before you run mindset remains firmly in place.

“Personally, I’d love to be number one in Michigan, our home base, and then a top player in two or three other states. I think it’s important to remain focused in Michigan before we branch out. We’ll look to be one of the top three in each respective state we go to within the next 24 to 36 months.”

This story was featured in the Canadian Securities Exchange magazine.

Learn more about Gage Growth at http://www.gageusa.com

Verano Holdings: A 14-state footprint and coveted brands set this Chicago-based cannabis company apart

Verano Holdings (CSE:VRNO) Chief Executive Officer George Archos has connected the dots of opportunity to create one of the biggest cannabis companies in the US. Based in Chicago, the vertically integrated, multi-state operator was valued at around $3 billion when it went public in February of this year. 

The 42-year-old serial entrepreneur, who also co-founded the Wildberry Pancakes & Café chain, was inspired to start Verano after seeing the potential of medical cannabis.

“I looked at the medical marijuana opportunity that came up in my home state of Illinois and saw it was a strong challenge. I also saw that it offered the benefit of helping people. I had an uncle that had multiple sclerosis and I think that he could have benefited from it when he was suffering,” says Archos.

“We applied for a license in 2014 and were selling product a year later. We started off small with less than 10 employees and we scaled over the years as the markets grew.”

From its roots in Chicago, Verano has evolved into a broad-based powerhouse with a 14-state footprint. It has cultivation, production and dispensary licenses across several states, lending it multiple revenue streams.

Verano has 28 retail locations under the Zen Leaf banner and 50 additional operating dispensaries, with plans to open around 10 more this year. It also has 340 active dispensary wholesale partnerships.

Verano was doing well before the pandemic and its strong growth shows no sign of slowing down. For the first quarter ended March 31, Verano revenue soared 117% to US$143.3 million compared to the first quarter a year earlier.

“Verano has massive upside over the next few years and for the long term as a cannabis green wave continues to sweep across the country,” says Archos. 

“We are seeing more daily-use consumers, besides more and more medical patients coming online every single day. Sales have been strong this year and we anticipate good sales in the back half of the year as well.”

The Verano boss chalks up being able to execute well on mergers and acquisitions to going public earlier this year. 

“Going public has given us access to capital, which has allowed us to transact on the M&A front. We have built on some very strong acquisitions to the Verano platform, which has given us access to markets like Florida, Arizona and Pennsylvania,” says Archos. 

“It’s really helped us deepen our footprint and bring some high-quality operators to the Verano family.”

In February, Verano closed a key merger with Florida-based Alternative Medical Enterprises that gave it access to 34 active retail locations in Florida, with more planned by the end of 2021, and one retail location in Phoenix. It also boosted the company’s cultivation facilities to 220,000 square feet in Florida and 30,000 square feet in Arizona, with expansion of an additional 60,000 square feet currently underway.

The company has also engaged in significant M&A activity in Florida, Arizona, Pennsylvania, Illinois and Ohio, increasing assets such as dispensary locations and grower/processor sites.

Verano has completed the acquisitions of Territory Dispensary, Emerald Dispensary and The Local Joint, giving the company the third-largest retail footprint in Arizona, with six active storefronts and two cultivation facilities. 

Verano has also expanded its dispensary footprint through M&A with TerraVida in the Philadelphia metropolitan area and acquired three dispensaries in the Pittsburgh metropolitan area through the Healing Center.  

“M&A has been a part of our story and we will continue down that path when we find assets and people that make sense for Verano. We like to transact so we do see more M&A in our future,” says Archos

“We are well funded for expansion of M&A activities so we’re in a very good position.”

Verano had $111.6 million in cash and equivalents as of March 31, and recently completed a $100 million upsizing of its credit facility to $130 million, for total liquidity of roughly $241.6 million.

“Given both its strong cash position, and strong free cash generation, the company is well positioned to fund both organic (supported by in excess of $100 million in CAPEX in 2021) and acquisition driven growth,” said ATB Capital Markets. 

Significantly, Verano’s cash flow from operations for the first quarter was $42 million, and free cash flow totaled $4 million.

Through its 10 cultivation and production facilities, Verano produces a suite of artisanal cannabis products sold under its portfolio of brands: Avexia, Verano, Encore and MÜV. These are positioned as premium brands, so the company enjoys premium pricing and higher margins.

“When Verano started off, we positioned ourselves as a premium producer, that’s just how we built our facilities,” says Archos.

“That’s how we marketed our products, and it goes into the hand trimming and level of detail that we put into every jar, and every product that we put onto the shelves.” 

By blending cannabinoids (THC and CBD), the firm’s Avexia Medical Cannabis brand has a portfolio of balms and lotions for pain relief, an Epsom salt soak, and a line of micro-dose tablets. Separately, the Verano brand has handy “swift lift” pre-rolls, refined vapes, and concentrates, while Encore Edibles produces handcrafted chocolates, mints, gummies, hard candies and caramels.

Meanwhile, MÜV has received multiple patents for its award-winning products that provide high-quality, reliable medical cannabis for patients.  

“We consistently add cultivation as markets scale, so we are constantly under construction in almost every market, adding flower capacity and manufacturing capacity because every market is growing,” says Archos.

“Verano sometimes is as much of a construction company as we are a cannabis company.”

Verano has opened three Zen Leaf dispensaries in New Jersey, where the expansion of its 120,000 square feet cultivation facility is underway in anticipation of the onset of adult-use sales in the state.

“Being profitable and cash flow positive was important to us, so we have been very good stewards of our capital,” Archos concludes. “We have deployed funds where we thought we could get the quickest return on investment.”

This story was featured in the Canadian Securities Exchange magazine.

Learn more about Verano Holdings at https://verano.com/