The year 2018 was a huge one for cannabis company IPOs and RTOs (reverse takeover). Big names like MedMen Enterprises Inc. (MMNFF) , Charlotte's Web Holdings Inc. (CWBHF) and Acreage Holdings Inc. (ACRG.U) all became publicly traded companies last year. According to Viridian Capital, a whopping 303 publicly traded cannabis companies raised money through equity markets in 2018.
Consolidation, though, seems to be the trend that is taking hold in 2019, not going public. However, there is one company that is about to go public with an IPO, and not an easier RTO, on the Canadian Securities Exchange that should be very exciting this week. SLANG Worldwide is expected to begin trading on Tuesday.
The company has an implied market value of $541 million and the shares are expected to be priced at $1.50. However, this share price was determined prior to Constellation Brands' (STZ) investment into Canopy Growth (CGC) , sending cannabis stock valuations higher, so this could end up being an unusually low price.
What makes this IPO one to watch is the inclusion of Organa Brands. Before listing on the CSE, SLANG acquired Organa for northwards of $200 million according to Billy Levy, Co-founder and President of Slang. Denver-based Organa Brands' official name is National Concessions Group Inc. The company is best known for its vape brand O.penVAPE. The company also makes Bakked dab products, Magic Buzz cannabis beverages and District Edibles gummies. It's best known for the Organa Labs, which is the extraction process part of the company and is essentially its backbone.
Currently, NCG has granted sublicenses to 14 cannabis-related businesses. The company earns royalty payments through its ability to turn other company's cannabis products into premium vape pens. NCG, or Organa's, revenue for the nine months ending September 30, 2018 was $11.6 million versus last year's $8.8 million for the same time period.
The O.penVAPE brand is the highest selling brand in Colorado, with over $170 million in retail revenue generated since 2014.
Total operating expenses for those same nine months was $4.3 million in 2018 versus $4.6 million in 2017. The company reported net income in 2018 of $4.7 million for those nine months.
Organa could have probably gone public on its own, but struck up a relationship with Levy and Peter Miller, who will be the CEO of Slang. Slang raised $66 million ahead of the acquisitions and Levy characterized the deal with Organa as more of a merger. "Going back to 2014, we got to meet the founders and the management of Organa. We started to develop a friendship and watched them go from one state to 10 and they watched us build Mettrum into one of the leading LP's in Canada," said Levy.
Peter Miller and Levy were co-founders of Mettrum Health, an Licensed Producer (LP) in Canada that was sold to Canopy Growth for $430 million. Levy co-founded both Virgin MEGA and Virgin Gaming alongside Sir Richard Branson, which were respectively acquired by Nike (NKE) in 2016 and Cineplex Inc. in 2015.
Levy also noted that they felt that the LP side of the business wasn't the future for growth in the cannabis industry. They felt brands and products were the place to be and Organa had both the product lineup and distribution model in place. "Our goal was to acquire great brands and pair that with distribution," said Levy. In turn, Organa was a founding partner in Slang.
While sales have grown at Organa and the company generates cash flow, it is still in the growth stage and will require additional funding for future growth initiatives. The sale to Slang was a direct result of its initiative to continue expanding and obtaining a source of funding for growth.
In addition to the Organa acquisition, Slang is also acquiring NWT Holdings, which is also known as Firefly. This is a dry material vape pen that competes with the well-known PAX device. Miller said he was most impressed with Firefly's co-founder Mark Williams, who was a design manager at Apple (AAPL) , leading the Mac OS X interface. "His design expertise is truly blue chip," said Miller. "We want to leverage his expertise of industrial design across the whole portfolio, as well." He said that the next generation of Firefly vape pens are going to occupy a super-premium segment of the market. Firefly will also be launching its own oil products this year.
Slang will also have the right of first refusal to license the Green House Brands, which includes the Green House Seed Co. and Strain Hunters. The Green House Seed Company has produced over 60 award-winning cannabis strains and was founded by Arjam Roskam. Green House also holds an exclusive master license to Strain Hunters, a series of documentaries centered around the quest for preservation of the cannabis plant, and the series has co-developed documentary series alongside HBO, VICE, and National Geographic.
Miller said the company will use its capital to equally expand the existing brands and acquire more brands.
