Marijuana Business Magazine September 2019

Marijuana Business Magazine | September 2019 98 BUILDING BLOCKS NEEDED But before entertaining any thoughts of exiting the space, cannabis companies in every sector—especially those starting out—would do well to observe the following, Morgan noted: Invest in human capital: “It’s important to surround yourself with the brightest people, and these are people who are not necessarily in your normal circle.” Get your financial house in order: “It was a long, long painful process,” Morgan said of the eventual sale of his former company, Organa Brands, to Slang Worldwide. (Slang acquired Organa for roughly $200 million before starting to trade on the Canadian Securities Exchange in January 2019.) Have a strong moral compass: “There are so many decisions to be made, and so fast, you cannot afford to be negotiating the value of them with your partners or colleagues.” Save time on negotiating: “Make partnerships. Negotiate as fast as you can. Be as generous as you can,” Morgan said. “High tides raise all boats, so you can row in the same direction.” And, finally, in an era when everyone talks about the importance of brand equity and brand loyalty, companies must somehow distinguish their brands in a very crowded market. One of the primary drivers of what Greiper at Viridian called “the mania of M&A” is the hemp industry after the passage of the U.S. Farm Bill in December 2018. But the industry and, notably, the focus on CBD cannot support the thousands of brands out there when it is essentially dealing with a commoditized and now legal product, he said. Instead, Morgan at Collective Hemp said companies are going to need “something that goes beyond the ingredient.” He described this as something unique and branded that can come from intellectual property. Cannabis customers expect companies to care, Morgan said. “You don’t buy a Prius because it is sleek and sexy, (but because) it is an extension of your values,” he said. “Every brand has a cause that is sincere, that is meaningful, that can differentiate. You need to create a brand that is an extension of someone’s personality, their values.” COMPETITIVE, LUCRATIVE, TOUGH It’s a competitive industry out there, and a potentially very lucrative one to be sure, but maybe, ultimately, for only a relatively few players. Cannabis veterans advise those starting out to get a solid business model together and execute well. Do not be afraid to collaborate and show at least a path to profitability as soon as you can. That way, at least, you might have an opportunity to exit. Conversely, focusing too much on exit from the start, at the expense of running as well executed a business as possible, could be your downfall. Nick Thomas reports on finance for Marijuana Business Daily. You can reach him at [email protected] The Million-Dollar Question: Sale or IPO? Founding a cannabis business in the United States is potentially highly lucrative. All you have to do is go public or get acquired, and the money will roll in, right? Well, not exactly, as those who have been through exits in the industry know. “A lot of it sounds so easy, whether you are going to get acquired or go public,” said Billy Levy, president of cannabis brands company Slang Worldwide. “When you go beyond that, these are two quite different paths.” If a company decides to go the public-offering route, that opens a level of shareholder scrutiny that inexperienced leaders may find difficult. “You are judged on a daily basis,” Levy said. “You are now managing a shareholder base, and these are responsibilities that not too many people working in the cannabis industry have experienced.” For Levy’s part, Slang acquired Denver-based Organa Brands for approximately $200 million and went public in late January. ACQUISITION AND PARTNERSHIP Going down the acquisition route can be relatively straightforward if the process goes smoothly and, as Levy points out, you are simply looking for cash and “going to the beach.” But founders staying on in the acquired company need to fully understand what a merger of cultures will mean for those who remain on board. Leaders may be contractually obliged to stay in the newly formed business. And if the cultural fit turns out to be poor, that could turn out to be a nightmarish experience. Potential sellers, therefore, must conduct due diligence before selecting a partner to take over. “How do you mesh and gel with these people, and are there really true synergies there?” Levy said. “Equally as important as the asset is the importance of the people. It has to be a good fit for the people who are joining forces.” – Nick Thomas EXIT RAMP UP Billy Levy. Courtesy Photo