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Editorial Coverage: Even though medical marijuana had been
legal in some U.S. states for more than a decade, the substance
didn’t gain much recognition until Colorado set the market on its
head in 2012 by making adult-use marijuana legal. Since then, other
states have followed suit, while in 2018, Canada went all-in to
become the first developed nation with weed legalized at the
federal level. Not surprisingly, North American companies and
investors were tripping over themselves trying to capitalize on the
massive burgeoning market. In all market segments, plenty of
lessons were learned as everyone from companies to investors to
lawmakers worked to organize a brand new market; lessons that the
new generation of multistate operators such as Red White
& Bloom Brands Inc. (CSE: RWB) (OTCQX: RWBYF) (Profile) have leveraged to more efficiently
execute their business models. RWB is following in the footsteps of
large first movers such as Curaleaf
Holdings Inc. (CSE: CURA) (OTCQX: CURLF), Green
Thumb Industries Inc. (CSE: GTII) (OTCQX: GTBIF),
Trulieve
Cannabis Corp. (CSE: TRUL) (OTCQX: TCNNF) and Cresco
Labs (CSE: CL) (OTCQX: CRLBF), companies that survived
the early days to hold valuations in the billions of dollars.
- Grand View Research forecasts the global legal marijuana market
to grow 14.3% annually to reach $84 billion by 2028.
- RWB is emerging as a dominant MSO, with licenses, cultivation
space and dispensaries in top U.S. markets.
- Products are already in more than 700 dispensaries; its PV
products are no. 1 selling vape in Michigan.
- RWB has acquired licensing, branding rights of High Times
dispensaries and High Times cannabis-based CBD and THC
products.
Click here to view
the custom infographic of Red White & Bloom Brands Inc.
editorial.
Learn from Elders to Capture Chunk of $84 Billion
Market
The green rush is in full swing,
including medical marijuana now being legal in 36 U.S. states and
recreational marijuana legal in 16 more plus Washington, DC. A
recent
survey by Pew Research indicates that 91% of Americans say
marijuana should be legal for use by adults in some form, which
begs the question about when Congress will take up the issue to
overturn federal prohibition. To that point, market analysts at
Grand View Research see legalization and better understanding of
therapeutic benefits as key drivers in the global legal marijuana
market growing 14.3% annually to reach $84 billion
by 2028.
While most think that trumpeting first-mover status is the
optimal position, that isn’t always necessarily true. Look what
happened to MySpace and AIM (AOL Instant Messenger) as they faded
to irrelevance as Snapchat, TikTok and Instagram exploded in
popularity to challenge incumbent platforms. Second movers can
enjoy advantages as they learn from pioneering entities that paved
the way. Specific to the cannabis business, there is no shortage of
companies that learned from sad experience the price to pay for
expanding too fast, overpaying for acquisitions, or building a
business a mile wide and a foot deep.
Red White &
Bloom Brands Inc. (CSE: RWB) (OTCQX: RWBYF) is a compelling mix
of old and new that is methodically building a commanding position
in the United States. as a multi-state operator ("MSO"). In fact,
the company refers to itself as a “super state operator,” a
reflection of its strategy to remain hyperfocused on dominating
specific markets before expanding to others, which ensures it
doesn’t get spread too thin. The company has the capital to move
aggressively after raising $44.5
million this month, part of which went to retire $7.7 million
in debt.
Headquartered in Toronto, Canada, Red White & Bloom’s
business is initially targeting seven states with lucrative
cannabis markets: California, Arizona, Oklahoma, Florida, Illinois,
Michigan and Massachusetts. About 91% of the $24.6 billion global
cannabis market was generated in the United States in 2020, with
these states instrumental in market share.
Cumulatively across the states, the company owns, or has
agreements for, licenses (cultivation, processor and distribution),
millions of square feet of cultivation space for CBD (cannabidiol)
and cannabis, and dispensaries (either open or leases that will be
retail locations), in addition to distribution networks that have
their popular brands in 700+ dispensaries.
A House of Premium Brands
Red White & Bloom is employing strategic brand acquisitions
and partnerships to become a top-three player in U.S. cannabis, as
well as its nonpsychoactive cousin hemp. RWB’s model is derisked by
leveraging longstanding and popular brands.
In the world of marijuana, arguably the most recognizable brand
is 46-year-old High Times(R), which is a portfolio brand of RWB
after an acquisition deal last year. Per the agreement, RWB has
licensing and branding rights of High Times dispensaries and High
Times cannabis-based CBD and THC products in Michigan, Illinois and
Florida. The company also acquired branding of High Times
hemp-derived CBD products nationally in the U.S. carrying the
Culture(R) brand.
RWB’s portfolio also contains Platinum Premium Cannabis Products
("PV"). As the name implies, Platinum CBD and THC
(tetrahydrocannabinol, the cannabinoid responsible for the high
feeling from ingesting cannabis) products are premium goods
manufactured to the highest industry standards for safety and
purity.
Mid-American Growers is also an important part of the portfolio,
a brand that began as an eight-acre greenhouse half a century ago
and which has grown into a 3.6 million-square-foot,
state-of-the-art technology and R&D facility under glass.
Mid-American product bag includes CBD Icy Relief Salve, CBD Icy
Relief Roll-on and CBD Gummies. This dovetails with RWB’s upcoming
PURA H&W of CBD cosmetics.
Impressive Core Markets
RWB is staring down a long list of catalysts, many of which are
centered on its core markets of Michigan and Illinois. Michigan is
the fastest-growing cannabis market in the country, with sales
topping $1 billion less than one year after legal recreational
marijuana sales started in 2019.
This is a growth springboard opportunity for RWB, which recently
received its prequalification for a cannabis license in Michigan.
The licensing paves the way for RWB to take control of eight stores
open currently, with two more awaiting licenses and eight more
turnkey ready that will be branded High Times. PV is sold in
200-plus dispensaries and is the top-selling vape in the state.
Furthermore, the company is prequalified for a processing license
for oils, edibles and concentrates, and is planning three indoor
cultivation facilities, including one under construction.
The Illinois market is booming after adult-use was legalized in
June 2019, and RWB is moving forward in this space as well. The
company recently signed a
definitive agreement to acquire the issued and outstanding
shares of Cannabis Capital Partners Inc., an arm’s length Ontario
special purpose vehicle with rights to concurrently purchase
medically and recreationally approved THC cultivation center
licenses in Illinois. Assets also include a 23,572-square-foot
active cultivation and manufacturing operation as well as the
associated inventory and the real estate assets, include two acres
of land.
Currently a $1.2 billion market and growing, Illinois’ approach
to the cannabis market remains fragmented. RWB aims to maintain and
expand the existing cultivation license but could be in line for
significant expansion if given the green light to utilize its 3.6
million-square-foot greenhouse located only a couple hours from the
existing licensed facility. The much larger facility could easily
add significant revenue via 100,000 pounds of product produced at
sub-$500 per pound cash cost and sold at $2,500 per pound
wholesale. PV and High Times products would be launched as
well.
C$32 Million in Sales and “Just Getting
Started”
As impressive as the existing asset list is, the fact remains
that RWB is still in its infancy, with some deals only recently
being finalized that will serve as key inflection points. Early
this month, RWB reported adjusted sales for Q1 2021 of C$32.2
million, up 2.4% from Q4 2020. Removing the forex effects of the
strengthening Canadian dollar, the gain was 5.5%. The company also
reached positive earnings before interest, taxes, depreciation and
amortization (EBITDA) of $460,000 for the first quarter.
The kicker is that those financial results don’t include the RWB
assets in Michigan that are not yet migrated under the corporate
umbrella, the Florida acquisition which took place at the end of
April, nor did the results include the Illinois assets, which are
still waiting on regulatory approval to close before being added to
RWB’s books.
“Those assets when coupled with the significant market share of
our Platinum brands, makes us a significant player in Michigan —
and we’re actually just getting started,” commented Brad
Rogers, RWB Chairman and CEO, in a recent news release. The
company added that it remains active in looking for new
acquisitions, is expanding its cultivation footprint in Florida and
plans to have new Florida retail stores open during 2H 2021 as
well.
Investors Love MSOs
While an upstart such as Red White & Bloom is still a
microcap, Wall Street and Bay Street have shown their interest in
MSOs. The rationale is simple insomuch that majors are whipping up
big revenue numbers as the markets continue to emerge, which makes
them good long-term holds.
Curaleaf
Holdings Inc. (CSE: CURA) (OTCQX: CURLF) is a top provider of
cannabis consumer products and industry-leading service product
selection and accessibility across the medical and adult-use
markets. Curaleaf brands
includes its eponymous products, as well as Select and Grassroots.
The company has operations in 23 states with 106 dispensaries, 23
cultivation sites and more than 30 processing sites; the company
employs more than 4,800 team members, while also being the largest
vertically integrated cannabis company in Europe. During Q1,
Curaleaf reported $260 million in sales, putting it on track to top
$1 billion this year.
Green Thumb
Industries Inc. (CSE: GTII) (OTCQX: GTBIF) manufactures and
distributes a portfolio of branded cannabis products including
Beboe, Dogwalkers, Dr. Solomon’s, incredibles, Rythm and the Feel
Collection. The Chicago-based
company also owns and operates national retail cannabis stores
called Rise(TM), has 14 manufacturing facilities, licenses for 103
retail locations and operations across 12 U.S. markets. During the
first quarter, Green Thumb reported a revenue surge of 89.5%
year-over-year to $194.4 million.
Trulieve
Cannabis Corp. (CSE: TRUL) (OTCQX: TCNNF) is primarily a
vertically integrated seed-to-sale company and is the first and
largest fully licensed medical cannabis company in the state of
Florida. Trulieve
cultivates and produces all of its products in house and
distributes those products to Trulieve-branded dispensaries
throughout the state as well as directly to patients via home
delivery. The company is also a licensed operator in California,
Massachusetts, Connecticut, Pennsylvania and West Virginia.
Trulieve generated $619 million in revenue in the last year, but
its recent acquisition of Harvest Health will put it over the $1
billion mark annually.
Cresco Labs
(CSE: CL) (OTCQX: CRLBF) is one of the U.S.’s largest
vertically integrated MSOs. Employing a consumer-packaged goods
approach, Cresco is the
biggest wholesaler of branded cannabis products in the country,
with brands including Cresco(TM), High Supply(TM), Mindy's
Edibles(TM), Good News, Remedi, Wonder Wellness Co.(TM and FloraCal
Farms(R). Cresco’s national dispensary operates under the moniker
Sunnyside. For Q1, Cresco reported revenue of $178.4 million, up
168.8% from the year prior quarter. Indicating the expectations of
more growth, management provided guidance of annualized revenue
run-rate of more than $1 billion by the end of 2021.
Some critics have knocked the legal cannabis market as getting
off to a slower-than-expected start over the last few years.
Perhaps that is true, but the type of results the aforementioned
companies are producing indicate that the U.S. cannabis market is
alive and well, which could easily lead to some consolidation in
the coming years as bigger companies look to immediate expand their
footprint through acquisitions.
For more information about Red White & Bloom Brands, please
visit Red White &
Bloom Brands.
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