Earlier this month, I wrote about how Canopy Growth is using its strong balance sheet to buy back a portion of its stock. In my post, I pointed out that Canopy may buyback a portion of its stock in order to keep its stock price from rising too far too fast.
As we discussed in our previous blog posts, the cannabis industry is very volatile, and has substantial growth potential. With that said, it can be difficult to make money out of it. After all, the cannabis industry is heavily regulated, which involves a lot of paperwork and a great deal of capital.
As cannabis companies have begun to make big moves in the stock market, investors have started to pay attention. The most common question is, “What exactly is a cannabis company?” It’s a fair question: the cannabis industry is still subject to federal prohibition, making it difficult for companies to raise money directly from their investors. So, how do these companies raise money if they cannot raise money from the public?. Read more about strong balance sheet stocks and let us know what you think.
Exclusive interview with Steve Allan, CEO of The Parent Company
The parent company (NEO:GRAM.U) (OTCQX:GRAMF) began trading about six months ago and went public via a SPAC deal involving Subversive Capital, Caliva, Left Coast Ventures, Sisu, Roc Nation and Jay-Z’s Monogram. The company wants to consolidate in California and become the market leader there. CEO Steve Allan spoke with New Cannabis Ventures in December 2020, when the company was still in its infancy, and he’s back to talk about the early days of integration, acquisitions and expansion, both domestically and internationally. An audio recording of the entire interview is available at the end of this written summary.
Go live and start
Allan says entering the stock market through SPAC has been a learning process. The company’s team had to organize a large number of events in a very short period of time. After closing the transaction on the 15th. In January, the company focused on integration. According to Allan, in the first 100 days of its existence, the parent company closed three redundant factories, reduced labour costs and improved access to raw materials. In May, the company conducted several operations to grow flowers for the field and for the greenhouses.
The Company expanded its access to raw materials earlier this year.
The management team leading the development of The Parent Company has remained largely unchanged since inception, although the company hired Mike Batesall as CFO in February. A former employee of Cresco Labs, Mr. Batesole brings a wealth of public sector experience to his position at the parent company. The company is developing its staff at the director and vice president level to build capacity in areas such as culture and delivery.
According to Allan, the SPAC process has been a sprint and the company now wants to leverage the robust, vertically integrated platform it has in place in California.
Parent company in California
The parent company has a 28,000 square foot indoor warehouse in Northern California. The company consolidated a significant portion of its production by focusing on the San Jose plant. The company also has two major distribution centers, one in the Bay Area and one in Los Angeles. The parent company currently has about 480 stores and will add 10 to 15 stores per month in the future.
In retail, the parent company has seven stores, including the recently opened Calma store in West Hollywood. Allan said the company aims to bring that number to the mid-teens in the next two to three quarters.
Going forward, the company will focus on mergers and acquisitions to expand its retail and supply chain capabilities. According to Allan, there are currently barriers to entry in the California market, which has fewer than 1,000 outlets. The parent company is trying to overcome these obstacles by expanding the number of locations and creating a delivery infrastructure that connects with consumers on their terms, including online ordering, pickup and in-store purchases.
The parent company wants to provide consumers with access to cannabis in a variety of ways.
The parent company has a wide range of products in different form factors and price ranges, but will opportunistically consider further product and brand acquisitions. There are a number of strong market participants in the California market that simply need capital to accelerate their operations, and Allan sees value-added opportunities in a number of them.
Although there are a limited number of retail dispensaries in the legal cannabis market in California, retail outlets continue to exist in the illegal market. Allan expects that as cities and counties implement cannabis programs, the number of legal cannabis dispensaries will increase and jurisdictions will be more motivated to crack down on the illegal market.
The parent company is seeking supremacy in California, but is also exploring opportunities in other markets. While the exact timeline for federal legalization has not yet been determined, the company envisions a future that will allow for cross-border transactions in the United States. Given this future, the parent company does not intend to go the traditional MSO route and expand to other states at great cost.
Instead, the company is looking for partners to help spread its brands across the country and eventually around the world. It will consider entering into licensing agreements with partners that have a proven track record in cultivation and production with high added value.
In the long run, the company sees California becoming a major exporter of cannabis products in the United States and around the world, Allan said.
Collaboration with Jay-Z and Roc Nation
Jay-Z and Roc Nation have a proven track record of building multi-billion dollar brands, and the parent company is looking to leverage that experience to repeat that success. Because cannabis is still prohibited by the state, businesses cannot use traditional marketing tactics to promote their products and brands. The cultural influence of Jay-Z and Roc Nation plays an important role in raising awareness of the parent company and destigmatizing the industry.
Investing in social capital
Social justice has been an important factor for the parent company since its inception. It launched a $10 million fund, and its first two investments were Josephine & Billie’s and The Peakz Company. Whitney Beatty, founder of Josephine & Billie’s, has developed a cannabis product for women of color. Jesse Grandy is the founder of cannabis brand The Peakz Company. The parent company plans to make approximately two capital expenditures per quarter in the future. Allan hopes that this programme will be emulated by other companies in the sector.
Using the balance in work
On the 1st. In the third quarter, the parent company had just under $300 million in capital on its balance sheet. The company has the largest balance sheet in California and plans to turn it into a competitive advantage, Allan said. Much of this capital will be used for inorganic growth opportunities. The company is looking for other companies to join it, in part to expand its retail and distribution operations throughout California.
Expansion of distribution will be the main focus of the parent company in the future.
Although the company is currently well capitalized, Allan is pleased with the lower cost of capital. Allan said the parent company is in a position to be patient and wait for the financial situation to normalize in the coming quarters and years.
The parent company reported first quarter revenue of $40 million. In addition to acquisition projects, the company has organic opportunities that will continue to drive growth quarter after quarter. Allan hopes to extract maximum value from these acquisitions by leveraging the fragmented and undercapitalized California market.
No company currently has double-digit market share in California, and Allan says the parent company sees gaining that market share as a major opportunity in the next 12 to 18 months. In implementing the strategy, the team looks at indicators such as revenue growth and product additions. The company focuses on the percentage of the population it can reach in terms of direct access to consumers. This percentage is currently around 50% and will be increased to 75% in the second half of this year. The company wants to reach more than 90 percent of California’s population by 2022.
There are many opportunities for the company. The company will continue to consolidate and seek new capital investments and will continue to look for suitable transactions. The parent company’s team ultimately wants to lay the groundwork for a 100-year-old company that will become a leader in cannabis in the United States and around the world.
New Cannabis Ventures provides a sponsored investor dashboard for the parent company. Listen to the interview in its entirety:
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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 parent company of a company that owns several marijuana-related businesses recently reported that its strong balance sheet allowed it to make a 4.9 billion dollar acquisition. Stockholders were rewarded with a 12% dividend, and management made significant stock buybacks. The company is investing heavily in research and development, and its portfolio of holdings is diverse and growing. It acquired a significant stake in Cannasat, which recently made news when it was announced that it had received approval from the Treasury Department to conduct a human clinical trial on an AIDS medication.. Read more about what is a weak balance sheet and let us know what you think.
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