Lazy investors may not want to put the effort into understanding how the roll up of several cannabis companies into Tilt Holdings makes sense. This will pay off for the investors that do take the time and effort to dig through the various parts of this company that seems to span all facets of the cannabis industry.
Earlier this year, the biggest merger in the industry was between Aurora Cannabis (ACBFF) and MedReleaf, which was valued at $2.2 billion. That was followed by a roll up in May of Tilt Holdings, a company that is on track to deliver $70 million in revenue for 2018. To put it into perspective, last year, Aurora reported $40 million.
Tilt is a combination of software company Baker, marijuana delivery company Briteside, facilities operator Sea Hunter and Toronto-based cannabis producer Sante Veritas. Sante Veritas was already trading as a Canadian license producer, but as a result of the merger, the stock was halted. The Canadian Securities Exchange has given conditional approval to begin trading again, which could happen at the end of this month with the symbol TILT.
Tilt Chief Executive Officer Alex Coleman said that he believes the company could deliver $500 million by the end of 2019. This is considerably more revenue than many other cannabis companies that are valued in the billion dollar range. So far the company has raised $150 million.
On a positive note, a majority of the company isn't subject to 280e restrictions. Meaning it can make business deductions like any other domestic business. This means its profits should be higher since it deducts expenses in those particular companies.
One of the criticisms against the roll up of Tilt, was the dramatic differences between the companies. Baker is a customer loyalty platform, so what synergies are there with a licensed producer in Canada? Or how does a pre-fabricated modular cultivation building benefit a delivery business?
"New medical markets have made it a necessity to bring the whole approach," said Coleman. He pointed out that mature states like Colorado have created an infrastructure, whereas new states with limited licenses and equally new businesses actually benefit from a company that can help them from the beginning of the process to the end.
Sea Hunter gets license holders off to a good start with capital support and operational knowledge. Sea Hunter also has premium cannabis brands to choose from, should the dispensary need product. It is also the holder of 44% of the company giving it a majority ownership.
The baton can be passed to Brightside's prefab cultivation units, which help producers scale up quickly at the beginning of the process. Its share is 24% of the company.
Baker touches the consumers at the point of sale through the loyalty program. Most states can't keep customer data, but since the customers opt-in to Baker, it can. This data can drive specific categories and is used for promotional purposes. Dispensaries can't advertise, but they do pay Baker for every text they send out offering event information or discounts. Some dispensaries will send multiple texts a day.
Finally, Sante Veritas has the smallest ownership in the company at 15%. This company's first facility in Powell River occupies approximately 40,000 sq. ft. on four floors encompassing approximately 12,000 sq. ft. of indoor cultivation area.
Tilt is working with plant geneticists in order to develop strains with specific outcomes to better deliver target cannabis solutions. It is also planning on acquiring additional companies like Blackbird, which is associated with Brightside and the vape technology company Jupiter. Coleman said there were other transactions that will be announced soon that will be bring in immediate revenue.
Tilt may be a little harder for some investors to wrap their heads around. It takes an extra effort to go through the parts and learn what each does and how it helps the company. By including software and building companies that can cross state borders, the company isn't limited to just specific markets. It can create national brands that benefit the whole company.
Also Tilt's revenue stream will rival some of the billion dollar players that can only project millions in revenue. Tilt's revenue forecasts, should they come through, could make this company a sleeper hit.
