Tag Archives: Public Entrepreneur

Harvest Health & Recreation turns modest investment into largest cannabis footprint in US

It isn’t often that one looks at a company and it’s as though they have thought of everything, with no obvious gaps to fill, no apparent weaknesses. That’s the impression one gets speaking with Steve White, Chief Executive Officer of Harvest Health & Recreation (CSE:HARV). A lawyer before making the leap into running a cannabis company some eight years ago, White is adept at navigating challenging regulatory environments, and communicates with the tone of a professional who knows he’s at the top of his game.

A commitment from a single investor last month to fund the company with up to US$500 million is just the latest sign that Harvest has not only a great track record, but also the vision and ability to execute that separates winners from also-rans in any industry. Public Entrepreneur spoke with White recently about his philosophy on building a successful business in the cannabis sector, and a recent acquisition that will give Harvest the largest presence in the United States cannabis industry.

We’ll get into your recently announced acquisition of Verano Holdings with our second question, but so we have some context, tell us how Harvest got started and some of the key milestones in your development to date.  And where do you stand now in the industry vis-à-vis other companies with similar business models?

We started in Arizona in 2011, so we were really early in the cannabis industry compared to many others in the space today. In terms of key milestones, in 2012 we won two licenses in Arizona.  Those were vertically integrated licenses. What’s important here is Arizona became a helpful training ground for us. We had to get good at cultivating, manufacturing and retailing cannabis – seed to sale. It was completely by happenstance that it was a teaching moment for the future of our growth and ability to master the various aspects of the industry.

Some of the bigger milestones have to do with expansion, and there have been so many that it is hard to isolate any. But one to note is on July 1 of 2017, we merged with a company called Modern Flower, led by a gentleman named Jason Vedadi. That was a moment that really helped to accelerate our growth as an organization.

From there I would have to say the next big milestone was the announcement of our agreement to acquire Verano Holdings, headquartered out of Illinois. That acquisition made us the largest cannabis company in the United States by ability to open revenue-generating facilities, subject to regulatory approval. We’ll have more licenses and licenses to open more facilities than any other cannabis company in the country.

That helps to answer your second question, which is what makes us different relative to our peers. Beyond the ability to win licenses organically and make strategic and accretive acquisitions, I would say the second thing is we have been consistently profitable as a company for many years. The only other multistate operator I knew of that was also consistently profitable happened to be Verano.

The Verano transaction brings two very successful companies together to make you the biggest multistate operator in the US.  Why is Verano such a good strategic fit for Harvest’s existing assets?

It was a perfect fit on three fronts. First, the Verano leadership team and their employees are people who are very easy to integrate into Harvest’s culture because they are a lot like us. And I think most importantly, we like them and vice versa. They are just great human beings with mindsets and focuses that are very similar to ours. So, the human capital in that acquisition was really important.

Second, the assets that we acquired pair perfectly with what we were hoping to put together in the near future. The acquisition has brought us into Illinois, Nevada and New Jersey in a very meaningful way. That represented our list of markets that we really wanted to enter in the near term.

And lastly, they have some great brands that do not overlap with some of the brands we are already producing. For example, in Illinois they represent about a quarter of the wholesale business, and their emphasis is in areas that we don’t have a big emphasis in yet, like edibles.

There is a “landgrab” taking place in the US cannabis industry, playing out partly in a large number of acquisitions. Harvest is growing both organically and through acquisitions. What is your competitive edge versus other well-funded companies in the space?

First, I would say that we can acquire market access organically, meaning we can win licenses when states issue them. Second, we have found that people we look to acquire are believers in Harvest’s stock. With a lot of these acquisitions, the sellers have to decide whose stock they want to hold, and we have a reputation in the industry that allows us, in some instances, to acquire people for less than what they would charge other potential acquirers. And we have seen that in a couple of instances, so that is very helpful for us.

It is difficult to say when federal legalization might take place in the US, but what is Harvest’s industry outlook?  You must have some vision of the industry of the future as you formulate corporate strategy.

Long term, you are going to see a shift away from cultivation.  Phase 2 will be about retail, and Phase 3 will be about brand development. We are planning in everything we do to take advantage of, and create, the infrastructure necessary to capitalize on that evolution of the market.

It’s really interesting in that each individual market evolves separately. So, while you might have a very mature market like California that is, in our minds, almost purely a brand game, there will be other states that just recently came online, and new states where you can see tremendous returns in cultivation. But those new states will eventually become mature states, and so we gear our business to take advantage of cultivation opportunities when we are early and one of few. But generally speaking, our emphasis is on developing a large wholesale and retail footprint.

Harvest recently announced completion of the first tranche of a US$500 million convertible debenture financing. Can you talk about two things: first, the use of proceeds, and second, what convinced the investor to back Harvest to the magnitude, potentially, of half a billion dollars?

First, that half a billion dollars is solely dedicated to growth.  That is acquisition capital and rocket fuel. It allows us, in conversations with acquisition targets, to use more cash. In times when we don’t think our stock is trading appropriately, we can add more cash, so we can keep more of the stock if we think it’s too cheap.

The reason that financier was interested in Harvest was because they are a believer in the long-term outlook of the company. They saw that as an easy transaction for them, and one where they did it on terms that they haven’t done for other people previously.

On a personal level, you are one of the more experienced executives in the industry, and as Harvest’s leader you are pushing the company to grow faster than everyone else. Talk a bit about your background and how that has positioned you to drive the company’s success.

It’s been helpful to be a lawyer in my previous life. The way you plan a case in the law is you evaluate the facts available to you early on, and then you plan a strategy, or a path, to victory. In this case with cannabis, what we were doing is we were evaluating an ever-changing landscape and we were developing a path toward long-term significant profitability.

Your biggest obstacles are regulatory in nature, and as a result the ability to navigate regulatory hurdles – laws, in other words – is really helpful, because you can interpret things in a creative way to give you advantages over competitors, when appropriate, and you are looking toward the end goal, which is long-term, sustainable, and significant profitability.

Any student of markets will know that inefficiency is often a good place to search for opportunity. Given how the federal laws in the US differ with those of the states, and then from state to state, does this fragmented regulatory environment present opportunity?

It presents obstacles, and with any obstacle there is opportunity.  It presents obstacles to people who are not well-capitalized and who don’t have the experience to overcome those obstacles. But for those who are determined and well-capitalized, it presents opportunities to reap benefits that are sometimes better than a normal market would yield, particularly in limited-license markets.

Is it fair to assume that being one of the more high-profile companies in the cannabis industry, opportunities often find their way to you?

Unfortunately, we are constantly scanning for them. The great opportunities don’t find you; you have to find the great opportunities. The opportunities that find you are the opportunities that find everybody, and we pride ourselves on finding opportunities that others don’t. And that requires just good old-fashioned hard work and thinking outside the box.

Is there anything we have missed – any important points to get across that we have not touched on?

One of the things that’s most significant about Harvest is that at the time we went public we had very little access to capital. We developed one of the largest footprints in the country by deploying less than $18 million in total invested capital. So, at that time we were a $1.5 billion company with that small of an investment. We have a history of doing a lot with less, and the lessons we have learned that have allowed us to do that are things we deploy each and every day.

A big part of that is a demonstrated ability to execute. Whether that is winning a license or creating a profitable business with very little capital, we have demonstrated time and time again that we are able to do that, and there are not a lot of people who can say the same thing.

This story was originally published at www.proactiveinvestors.com on June 24, 2019 and featured in the Public Entrepreneur magazine.

Learn more about Harvest Health & Recreation at https://www.harvestinc.com/.

Mark Bunting on the Constant Evolution of Financial News Media

Mark Bunting, President of Capital Ideas, dropped into the #HashtagFinance studio to chat with Grace Pedota and share his favourite podcasts and thoughts on the format for financial interviews (1:15), observations on what’s next in financial news media (5:12), and play a game of financial “word blurt” (a #HashtagFinance first at 10:43). Listen until the end to learn about his most interesting interviews, his thoughts on the Beyond Meat IPO, the cannabis sector, and blockchain stocks!

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After winning Florida, Trulieve Cannabis is taking its business model multistate

According to Trulieve Cannabis (CSE:TRUL) Chief Executive Officer Kim Rivers, cannabis is emotional.

“In many contexts, either you or your loved one has felt relief from a medical condition using cannabis,” Rivers says. “It makes it an interesting business space because folks are predisposed to feel something towards what you’re selling. Understanding and embracing that is part of the brand strategy.”

Trulieve built its brand selling medicinal cannabis to over 158,000 customers in Florida, the fastest-growing cannabis market in the United States. The company is the dominant player in the state, with a network of 28 retail locations and a statewide delivery program. Now, Rivers and her team are turning their attention to the rest of the US, confident that their vertically integrated business model is repeatable in other states.

Founded in 2014, Trulieve was one of the initial applicants and license winners in Florida.  According to Rivers, the company’s impetus was to build a “true brand” that could penetrate the Florida market, a 21 million-strong population of socially and economically diverse inhabitants.  This diversity makes it an ideal testing ground for franchise-building, which is what Rivers and her team set out to accomplish.

According to Rivers, if you build scale, you build a brand.  Trulieve’s team did this by creating a “seed-to-sale” operation that produces nearly 35,000 kilograms of private label medical grade cannabis products, representing over 195 SKUs marketed at Trulieve-branded dispensaries.

The company went public on the Canadian Securities Exchange in 2018 when it felt that it had become the dominant player in Florida. The decision was also driven by management’s sense that the time had come to move into new markets.

“We’re ready to take the show on the road and prove out the next stage of growth by building a true multistate operational footprint,” Rivers says.

Multistate expansion
In the fourth quarter of 2018, Trulieve announced acquisitions in Massachusetts and California, two very different markets.

In Massachusetts, where Trulieve acquired Life Essence Inc., the state’s regulatory system is similar to Florida’s, making it a natural fit.  Currently, Trulieve is applying for licenses to build and operate three medical dispensaries, three recreational licenses, and permitting for a 140,000 square foot cultivation facility it would like to begin operating in the fourth quarter of 2019.

In California, the world’s single largest cannabis market, Trulieve is using a somewhat different approach.  Here, the company acquired a controlling interest in Leef Industries LLC, a licensed medical and adult-use dispensary in Palm Springs. Rivers is conscious that saturation of the California cannabis market could pose a challenge for new operators to build up in the state, which is why the team is adopting a more patient approach to grow the brand. The retail location in California will serve as a research base for Trulieve to learn about what people are buying.

While having a presence in California will be great for brand recognition, Rivers is particularly excited about the opportunity to grow in the northeast United States.

“Massachusetts is a catalyst win for us because we can build synergies around that hub in the northeast,” explains Rivers.

More recently, Trulieve completed its acquisition of The Healing Corner, a dispensary located in Bristol, Connecticut.  The state is an important market for Trulieve, as it is located in the Northeast where the company is focused and is home to more than 34,000 patients and 1,100 consulting physicians.

“The Healing Corner also shares our philosophy of growing a business profitably and has generated consistent profits.  The acquisition was based on trailing EBITDA and we anticipate it will be accretive.”

Coast-to-coast brand building
Building a brand on both coasts is not as simple as having a presence, however. Rivers sees what she calls an “east coast, west coast philosophy” in the cannabis market that can make expansion even more challenging.

“How can we create a company and a consumer experience that bridges this cultural gap?” she asks. “We try to be cognizant that we want to create connectivity to local markets. One way we do this is to invite local providers onto shelves.”

According to Rivers, the company could speed up its retail lease in Massachusetts, but the team needs to be confident that they can deliver the Trulieve experience, which hinges on whether they can get the growing facility built in the face of significant supply constraints in the state.

It’s one of the lessons that they learned by watching other companies who stumbled in Florida. “Some of our competitors rushed to open retail with only two or three SKUs, and it does irreparable damage to the brand,” Rivers says.

For Trulieve, the challenge is to be able to replicate its Florida success in new states with different market dynamics.

“When moving into other markets, it’s important to be confident in what differentiates you from your competitors,” Rivers points out. “For us, it’s having pipeline management and the ability to offer superior customer service and competitive pricing.”

Trulieve chose early on to set a national pricing strategy that is competitive in mature medical markets so that every customer can have a similar, state-agnostic retail experience. “If we want to compete nationally then we have to have prices that can translate,” says Rivers.

Strategy pays off
If early revenues are any indication, the brand strategy is paying off. In May, Trulieve reported revenue of US $44.5 million for the first quarter of 2019, up from $15.2 million during the year-ago quarter. 2018 full year revenues were around $103 million, up almost 420%.

Income was also up exponentially from the same period a year earlier, at $43 million compared to $3.8 million.

Of course, these reported numbers don’t include any ramp-up in Massachusetts or the recent acquisition in Connecticut, and only a low single-digit percentage from California. In the current business year, Rivers and her team anticipate revenue topping $220 million.

There are a few external factors that could influence that revenue figure. Two bills in the US House of Representatives are expected to be tabled this year that could open new financing streams and fast-track the cannabis company’s ability to move operations forward.

The STATES Act would allow states to craft their own policies on cannabis. While it wouldn’t legalize the drug nationally, it would largely resolve conflicts between state and federal law.

Meanwhile, the Secure and Fair Enforcement banking act, or SAFE Act, would allow banks to service cannabis companies that comply with state laws, enabling them to access new streams of capital south of the border.

Both bills have a significant amount of bipartisan support, but Rivers and Trulieve are not relying on legislation to take the business to the next level.

“With respect to stability from a banking standpoint, the SAFE Act is not necessary, but is needed,” Rivers explains. “Larger institutions are charging absurd fees, especially for a business like ours that is driven by fundamentals. Typical debt structures are not available in the cannabis industry. If I want to raise debt, I have to talk to a fund that is cannabis-specific.”

Unlike other merchandisers, a retail license for a cannabis company is tied to the location specified on the license application. If a landlord raises the rent for that building, for example, the company has very few options to consider if it wants to keep the business open.

Emotional journey
What both bills signify is that the cannabis mindset in the US is changing from stigmatization to acceptance. A large part of that shift is thanks to the industry itself, and players like Trulieve.

In Florida, the company supports the advocate community through sponsorships and outreach efforts. It recently sponsored the “silver tour” in Florida led by cannabis pioneer Robert Platshorn, AKA Bobby Tuna, who spent some 30 years in federal prison on marijuana charges and now travels to senior citizen facilities to educate residents on the benefits of medical cannabis.

It all circles back to Rivers’ observation that led to the company’s founding and informs its strategy – that marijuana is emotional, and consumers form an almost personal attachment to brands. For Trulieve, that attachment is the driving force behind its growth and profitability.

“We’ve built Trulieve into a customer-first company with a focus on profitable growth,” Rivers concludes. “I believe strongly that you can be successful in this industry and build long-term value for shareholders by being a true operator.”

This story was originally published at www.proactiveinvestors.com on June 21, 2019 and featured in the Public Entrepreneur magazine.

Learn more about Trulieve Cannabis at https://www.trulieve.com/.

Rosy Mondin on the Hard Road to Cannabis Legalization in Canada

Rosy Mondin, CEO of Quadron Cannatech (CSE:PUMP), sat down with Grace Pedota to share her story as a reformed lawyer and cannabis advocate and how her experience and passion led to the origin of Quadron Cannatech (3:00), the role she has played as a champion for cannabis within the tiers of Canadian government (9:30), and the circumstances that led her to build the “Boss” extractor (12:00). Listen until the end to hear Rosy’s plans for vape pens, hemp extraction, and the introduction of the “Big Boss” extractor!

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Alex Tapscott on his Unshakeable Belief in the Blockchain Revolution

Author and Co-Founder of the Blockchain Research Institute, Alex Tapscott, sat down with James Black to discuss the origins of writing “Blockchain Revolution” with his father, Don Tapscott (0:45), the gut feeling that led him to leave his career in institutional sales (3:00), the resiliency and viability of bitcoin (8:45), and the role security token offerings (STOs) will play in venture financing (14:30). Listen until to end to hear Alex’s thoughts on how Tesla could utilize security tokens, his experience launching the inaugural Blockchain Revolution Global conference, and his perspective on how technology will impact his child’s future.

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Traci Costa on Leveraging Digital Innovation to Grow a Children’s Clothing Brand

Peekaboo Beans (CSE:BEAN) CEO, Traci Costa, sat down with Grace Pedota to talk about her lifestyle children’s clothing brand and how they recently pivoted to an omni-channel distribution model (1:00), while also discussing the network effect of social retailing (3:15), and utilizing technology to bring a brand to life (7:00). Listen until the end to hear Traci’s personal story on why she started the business, the importance of speaking to, and learning from other women entrepreneurs, and her advice for ANYONE starting a new business.

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Roger Dent on Small Caps and the Perfect Marriage Between Cannabis and Public Markets

Quinsam Capital CEO (and Harvard Business School graduate) Roger Dent sat down with Grace Pedota to discuss his love of small cap stocks and his career analyzing and investing in this asset class over the past 30 years. In this discussion, Roger shares the distinctions between companies that should go public versus those that should raise venture capital, why cannabis companies have been a perfect fit in the public markets, and his initial impressions of Canopy Growth as an investment opportunity, and why he thinks going public has been a major contributor to their success. Listen until the end to hear why he steered Quinsam Capital 100% into cannabis, why he believes there’s still a lot of investment potential in the sector, and his take on the burgeoning eSports space.

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Jack Bensimon on the Benefits of STOs in a Post-Quadriga World

Jack Bensimon, Managing Director of Black Swan Diagnostics, sat down with Barrington Miller to draw the distinctions between blockchain and digital currency (0:45), the practicalities of security token offerings (STOs) as a vehicle to raise global capital (4:45), and the importance of having regulated exchanges that offer investor protections and liquidity (8:30). Listen to the entire episode to hear why Jack predicts STOs, real-estate, and fractionalization will be the common themes around blockchain five years from now (14:15).

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Elizabeth Naumovski On Financial Literacy And Climbing An Active Volcano In Italy

Caldwell Securities Vice President of Marketing, Elizabeth Naumovski, sat down with Grace Pedota to discuss her experience climbing Stromboli, an active volcano in Sicily (1:40), developing her own financial literacy show that was influenced from her fear of finance along with her experience of hosting various finance shows (10:18), and the lessons she learned growing up in an immigrant family that helped her to live a debt-free life (16:33). Listen until the end to learn more about Elizabeth’s nomination at the Wealth Professional Awards on May 30th, and how her love for educating others in finance influenced her to become a finalist.

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Steve White on Retail Innovation and Progressive Hiring Practices in Cannabis

Harvest Health and Recreation CEO Steve White sat down for the final #WeedWeek episode with Grace Pedota to discuss how his company created a cannabis retail experience that had never been seen before (1:45), the importance of opening employment opportunities for veterans, women, and minorities (5:00) and why the cannabis industry is populated by so many ex-lawyers (12:15). Listen to the entire episode to hear Steve’s insight into how the $850m acquisition Verano Holdings materialized.

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