I recently came across a fascinating article in the Wall Street Journal about the growing trend of cannabis-related stocks. The article, which profiled two companies that produce cannabis-related products, made me wonder how many other businesses are benefiting from the growth of the legal cannabis industry. These companies are called ancillary stocks because they are involved in the cannabis business through the manufacturing of products but do not directly grow or sell marijuana.
Ancillary cannabis stocks (like Canadian cannabis companies) are expected to become the new growth engine in the cannabis market. These companies are able to provide additional value to ancillary cannabis companies and investors through services like cannabis consulting, grow consulting, and cannabis marketing.
There are two leading ancillary cannabis stocks, but which is best? That is a question that many investors have asked recently, as interest in marijuana has surged over the last year. Two of the top ancillary cannabis stocks, Tilray (NASDAQ:TLRY) and Cronos Group (NASDAQ:CRON), have been leading the way for the marijuana industry, with the former being a cannabis grower and the latter a cannabis distributor. Tilray has seen its share price rise from being almost $10 per share in March 2018 to nearly $175 per share in September 2018. Meanwhile, Cronos has seen its share price rise from almost $10 per share in March 2018 to almost $135 per share in September 2018. Both. Read more about top marijuanas penny stocks 2020 and let us know what you think.Aaron LoCascio and Nick Kovacevich Exclusive interview with Aaron LoCascio, founder and CEO of Greenlane, and Nick Kovacevich, co-founder, president and CEO of KushCo Holdings. KushCo Holdings (OTCQX: KSHB) and Greenlane (NASDAQ: GNLN) are looking to merge to create a leading player in the cannabis accessories market. KushCo sells its products, including packaging, consumables and butane, propane and ethanol through its energy division to some of the largest MSOs, LPs and brands in the industry. Greenlane’s product portfolio, which includes appliances and private label products, is sold primarily at retail and directly to consumers. After the merger, the company will have a diversified offering covering both the high and low end of the industry, with opportunities for cross-selling and to operate on a new, larger scale. Aaron LoCashio, founder and CEO of Greenlane, and Nick Kovacevich, co-founder, president and CEO of KushCo, spoke with New Cannabis Ventures about the timing of the merger, integration plans and how the convention-based company will continue to grow. An audio recording of the entire interview is available at the end of this written summary. Management of the merged entity Greenlane and KushCo have already announced the team that will run the pro forma company. Mr. Kovacevic will serve as interim CEO and lead a team of employees with entrepreneurial spirit and experience in high growth consumer products businesses. Locasio will be president. Other key members of the team include Adam Schoenfeld, chief strategy officer; Bill Beane, chief operating officer; Bill Moth, chief financial officer; Riana Barr, chief human resources officer; Michael Cellucci, president of consumer product sales; Andrew Goodman, senior vice president of packaging; and Douglas Fisher, general counsel. The team is focusing on the integration process and is preparing to start work once the merger is officially completed. Establishing a framework for integration KushCo and Greenlane have gone through the HSR waiting period, which is an important step in the regulatory process. The team expects the merger to be complete by the middle of next calendar year. Functional managers from both companies are working diligently on integration planning, and the team has hired outside consultants to assist with the process. Within 24 months of closing the deal, the company will realize $15 million to $20 million in synergies, Kovacevic said. Business sector and clientele Both KushCo and Greenlane sell their products in the U.S. and Canadian markets, and these will continue to be important markets for the convention-based company. This acquisition also enables Greenlane to position itself on the emerging European market. Kovačević expects that the pro forma activities of the company will be able to generate significant revenues and profits until the company is fully legalized on the European market. KushCo serves the major MSOs and LPs in the cannabis industry. Greenlane’s access to direct sales channels is part of what makes the merger attractive. While Greenlane was primarily a third-party supplier in the past, the company is now focusing on complementary vertical sales with an extensive portfolio of its own brands. As the company prepares for the merger, the team has spent a lot of time imagining the future product portfolio. According to Kovacevic, the company will reduce the periphery of its catalog by selling fewer SKUs overall. But the company is also building a strong innovation pipeline and plans to offer its customers products and brands that are in demand. Conveyor belt for mergers and acquisitions The merger between Greenlane and KushCo is not yet complete, but this deal is likely just the beginning of a merger and acquisition strategy for the pro forma companies. According to LoCascio, Greenlane has openly stated its intention to pursue growth through both organic and inorganic strategies. He describes the merger of Greenlane and KushCo as horizontal, broadening the base of distribution points and potential customers. In the future, the company plans to explore vertical opportunities, expand its brand house and possibly acquire its third-party distributors. Mr. LoCascio said the company has a strong pipeline of additional mergers and acquisitions that it intends to pursue in the short to medium term. Once listed on NASDAQ, the pro forma company will have access to capital and a distribution network, making it attractive to potential acquisitions. Mr. Kovačević sees the contingency fee business as a unique platform with the ability to package and integrate CPG’s ancillary businesses. Outlook for the balance sheet In the past year, KushCo has taken the time to strengthen its balance sheet. The company raised $40 million in shares in February, helping it pay down $17 million in debt. According to Kovacevic, the company currently has no long-term debt, except for an operating line of credit with Monroe Capital. Greenlane raised $100 million in its 2019 IPO. Today, the company has a strong balance sheet and little debt, not to mention the mortgage on its own building. Greenlane raised $100 million through an initial public offering in 2019. Once legalization at the federal level is a reality, Kovacevic said, investor demand will increase and public companies will have much better access to capital. The team is planning for resource dynamics. The company is moving towards a branded house model, which offers higher margins. In addition, Greenlane’s direct business includes an initial cash payment. Kovacevic sees improved working capital dynamics and expects the NASDAQ-listed company to access capital on favorable terms. He believes that KushCo and Greenlane shares are currently undervalued, which should be taken into account when planning the team’s fundraising strategy. Although leverage is a non-dilutive option, the company does not intend to overuse this strategy. The pro-forma company will work with its suppliers to find better working capital conditions and improve operational efficiency. Pro forma turnover The combined company is expected to generate pro forma revenue of between $310 million and $330 million in 2021. As for KushCo, the company works with large and fast-growing MSOs. Kovacevic said the company is increasing its resources to support its customers, which will help it ride on this wave of growth. The company’s twenty-five customers accounted for nearly 80% of its quarterly revenue of nearly $33 million. The company plans to continue building strong and deep relationships with key customers, cross-selling and creating barriers to competition. KushCo Pots and Labels. The pro forma company will focus on cross-selling and building deeper relationships with major cannabis operators. LoCascio said Greenlane will continue to develop its cannabis support products with a focus on its own high-margin brands. The company recently reported continued improvement, with overall private brand sales increasing from 20% to 25%. The future of the company As a large NASDAQ-listed company, the combination of KushCo and Greenlane will have the scale and expertise to navigate the industry’s complex regulatory environment. The company’s position makes it an attractive option for small ancillary companies looking to acquire it. In addition to inorganic growth, LoCascio says the company plans to take advantage of a wide range of cross-selling and up-selling opportunities. The story told by the company’s proforma could be of great interest to institutional investors who cannot buy U.S. cannabis stocks traded on the CSE and OTC. According to Kovacevic, the company’s pro forma offers these investors a chance to play in the global legal cannabis space. New Cannabis Ventures provides a panel of sponsored investors for KushCo. Listen to the interview in its entirety: Stay ahead of the crowd by subscribing to 420 Investor, the largest and most comprehensive subscription service for cannabis dealers and investors since 2013. Carrie Pallardi, a Chicago-based writer and editor, began her career in health care. Today she writes, edits and interviews subject matter experts in various sectors. As a published author, Carrie continues to tell compelling new stories to her network of readers. Please contact us for more information.
The CEO of a major ancillary cannabis business recently told another CEO that the days of cannabis being sold in the back room of the barber shop or the gas station are about to come to an end. His company will not only be a primary supplier in the emerging cannabis industry but also the majority owner and operator of two cannabis distribution centers.. Read more about cbd stocks to watch and let us know what you think.
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