VIDEO: International Cannabrands (CNSX:JUJU.A) Full Turnaround Mode

MidasLetter Live
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International Cannabrands (CNSX:JUJU.A) (OTCMKTS:GEATF) (FRA:31G) CEO Steve Gormley discusses the company’s new accretive acquisition strategy. International Cannabrands is focused on emerging cannabis brands and recently acquired Seattle-based Riotous, which provides financing services to cannabis cultivators and manufacturers. International Cannabrands is also close to finalizing a deal with California-based La Vida Verde, which offers a suite of popular cannabis brands. Acquiring established brands with strong regional recognition that have the potential to be franchised positions International Cannabrands well for legalization at the federal level in the United States. Gormley discusses Canadian leadership in the cannabis market and believes “the reality is, Bay Street is the Wall Street of the cannabis business, and the Canadians just bushwhacked us and took over.”

Transcript:

James West:   Steve Gormley here has a business called International Cannabrands, which you might remember was featured on one of our podcasts back in February? January? Anyways, I can’t remember the guy’s name we talked to, but he –

Steve Gormley: Jeff Britz. The former CEO.

James West:   That’s the guy?

Steve Gormley: The current Chairman of the Board.

James West:   Current Chairman of the Board?

Steve Gormley: Current Chairman of the Board, former CEO.

James West:   Ok. Those guys are great.

Ed Milewski:  Now you’re the new CEO?

Steve Gormley: I am the new CEO, newly minted. We dropped the announcement July 23rd; my acting COO, Neal Pomroy, joined the company as well, and we are in full turnaround mode.

James West:   Hmm. Are you going to lose the crazy symbol, JUJU.A? that’s – I was always saying to the guys, that’s why nobody can find the stock, why it doesn’t trade. Nobody knows how to pull up .A stocks.

Steve Gormley: If I had a dime for every time that issue has been presented, I’d be a wealthy man.

James West:   [laughter]

Ed Milewski:  The JUJU I think is a great symbol.

Steve Gormley: JUJU is very sticky.

James West:   JUJU, I like it! Good JUJU!

Steve Gormley: The .A obviously connotes preferred shares. So we’re presently under advisement, addressing that issue now.

James West:   Cool. So tell me about the business.

Ed Milewski:  Are these common shares? They’re common shares, right?

Steve Gormley: When you have a .A, it means you have common and preferred. So the .A connotes the preferred structure.

Ed Milewski:  Okay, okay, I get it.

Steve Gormley: That’s where you get the .A.

Ed Milewski:  All right. Well, we could talk about that later.

Steve Gormley: Sure.

James West:   So tell us about, you know, so last I recall, JUJU had a relationship with Julian Marley – that’s where the JUJU came from.

Steve Gormley: That’s correct.

James West:   And there were some other bits and pieces in there, and I thought, this sounds promising, but there was something not – it just didn’t smell right, it didn’t seem to have all the moving pieces that it needed. So tell me: what’s changed, what are you going to change?

Steve Gormley: Sure. So the mandate presently, which is now Board-approved as of August 18th, is to focused on an accretive acquisition strategy of profitable, off-marketing emerging brands in cannabis. I liken it to a regional beer model, right, where you come in and you start to roll up these household brands. And right now, we’re presently focused on acquisitions south of the border in the US, though we are actively and aggressively looking for a Canadian asset that will be synergistic with the platform we’re creating.

So today, we were happy to announce the acquisition of a company called Riotous, which provides financing services to –

Ed Milewski:  Where are they based out of?

Steve Gormley: Washington State – Seattle. And they’re engaged in an agreement with Solstice, which is the fourth-largest cultivator and manufacturer in the Washington market, based out of Seattle, and Riotous provides financial services and financing services for licensed and lawfully operating cultivators and manufacturers. So we’re excited about that transaction. Our strategy, as I mentioned, is to really roll up these brands, but what will distinguish International Cannabrands in the market is that we’ll be profitable. We signed an LOI with a company called La Vida Verde; we anticipate being able to close the definitive agreement soon, and we’ll be able to finance, we intend on financing the full acquisition of a 51 percent stake in La Vida Verde, which is a suite of very popular brands.

Ed Milewski:  And where does that take place?

Steve Gormley: Northern California. That company is based out of northern California; the principals in that business are seasoned and well-respected cannabis entrepreneurs.

Ed Milewski:  So business in the US regarding cannabis is confined to the state they’re in, is that correct?

Steve Gormley: Yes.

James West:   You can’t cross borders.

Ed Milewski:  Okay, so, but you’re going to be in Washington and you’re going to be in California, those are your two first jurisdictions?

Steve Gormley: Correct. Yeah, the States is still largely run under the Cole Memorandum. Deputy Attorney James Cole, who was Deputy Attorney under Eric Holder under the Obama administration, issued a proclamation in August of 2013 to the states saying that the Federal government would step back and leave businesses that had been, you know, were lawfully operating in states where the legislature had spoken, as long as the business did not violate two basic principles. One was, the Federal government does not want any cannabis products being sold or distributed to children or minors in any form, and as you can imagine, that’s a real hardship for people who have children that suffer from debilitating pediatric seizure disorders, epilepsy…you’ve heard of Charlotte’s Web.

Ed Milewski:  Absolutely, yeah.

Steve Gormley: This is a big problem, it’s created a big medical refugee market.

Ed Milewski:  It probably wasn’t their intent.

Steve Gormley: It wasn’t their intent, but –

Ed Milewski:  There’s some screwy rules over there. Screwy rules everywhere.

Steve Gormley: It doesn’t make sense.

Ed Milewski:  I’m just saying, look, at the end of the day, if you could take something that’s going to alleviate pain you can’t even imagine, and you know.

James West:   Okay, so then you got all these different brands coming together –

Steve Gormley: And then, just to finish the point, of course, the other tenet of the Cole Memorandum was no interstate commerce. So that leads you having to silo businesses in markets. So you can’t franchise. The only thing you can do is cross the state border with packaging, but if you’re going to put a cannabis product in packaging that’s leveraged in, say, California, and you want to do the same in Washington State or Nevada, you have to actually manufacture and fulfill in the state. So you can’t cross the border with cannabis products, you can only cross the border with packaging.

Ed Milewski:  So when you identify a business that’s profitable that you want to absorb, how do you – are you going to raise the money at that point for each?

Steve Gormley: Firstly it comes down – the first thing that we’re really looking at are the management teams, right? So when you look –

Ed Milewski:  Right. You want to keep the management teams, generally speaking?

Steve Gormley: If they’re profitable, then –

Ed Milewski:  Obviously they’ve done something right.

Steve Gormley: Well, and there’s not that many of them. And part of the challenge that we’ve faced north of the border here in Canada in trying to find an asset for our portfolio is identifying a profitable Canadian cannabis company. They don’t grow on trees, right?

James West:   [laughter] That’s a punchline around here.

Ed Milewski:  You know, yesterday we saw Tilray come out with a big increase in revenue but a bigger increase in losses, and the stock jumped like a –

James West:   Like a rabbit.

Ed Milewski:  I was going to say, like a big frog.

James West:   Kangaroo.

Steve Gormley: Yeah. Have Pogo stick, will jump.

Ed Milewski:  Anyway, up at one point like $10 from yesterday.

James West:   So you’ve got 80 million-plus shares outstanding right now, and you’re trading at a dime, which sounds like a great acquisition level.

Steve Gormley: Ten bagger on the horizon. Ten bagger on the horizon.

James West:   I was going to say.

Ed Milewski:  You know what? It’s too bad we weren’t doing our old show, the Ten Baggers – we could segue right in!

Steve Gormley: We’re the Cannabis Ten Bagger – that’s our intent.

Ed Milewski:  CAB. CT. Sorry, I got that wrong.

Steve Gormley: CTB.

James West:   So at least I can see from the volume, we’re looking at the chart here, if we could put the chart up –

Ed Milewski:  Can I just say, I just looked at that chart, it’s got something right there at the end there where it looks like it’s sort of leaving, you know, it looks –

James West:   Here we go.

Ed Milewski:  You know what I like on this thing? I’ll show you, right here.

Steve Gormley: Please.

Ed Milewski:  I like this action right here, this big volume day. This sort of sticks out like a sore thumb. You’ve got this nice green candle, you got a little extension here so the back can fill. But if it can get going here, and then trade that high, which is –

Steve Gormley: That’s our intention, Ed.

Ed Milewski:  There you go.

Steve Gormley: And we have a pipeline of acquisitions –

Ed Milewski:  It looks – it looks, you can see that this bottom looks like it’s, you know, a saucer. Where’s your cup? Here’s my saucer.

Steve Gormley: The reality is, the Canadian market right now is driven by extreme exuberance over fundamentals.

James West:   Right, that’s generous. I would say lunacy.

Ed Milewski:  And when did you – you’ve been here before.

Steve Gormley: I’m American. Our definition of lunacy is a whole other threshold.

Ed Milewski:  What political party?

James West:   Oh, we’re not going there.

Ed Milewski:  The lunatics are always on the other side.

Steve Gormley: Well, that’s actually an important conversation south of the border, because we feel that Canada has been – look, the reality is, Bay Street is the Wall Street of the cannabis business, and the Canadians just bushwhacked us and took over. And there will be Canadian hegemony in the financial markets around cannabis for some time to come, because –

James West:   That’s a very astute statement.

Steve Gormley: Well, because even if the United States in the next administration, whether that be another Republican, whether that be Trump or whether that be a Democrat, the left wing, the libertarian wing of the Republican party, all want cannabis prohibition repealed. It’s been a failure to the US taxpayer, the war on marijuana; we’ve spent billions incarcerating non-trafficking-related offenders, and they’re mostly young men of colour. So it’s a whole thorny issue all around.

Ed Milewski:  This prison thing is insane, because it’s not crimes, it’s – like, if it’s a crime, it’s a crime against yourself, right? Drug use. Like again, I’m not –

Steve Gormley: That’s a Canadian point of view that I share, that really doesn’t gain much traction south of the border. You know, what I see in Canada, and the reason I’m up here, and the reason why you’re going to see a lot of –

Ed Milewski:  So are you going to live up here for a while?

Steve Gormley: I’m here all the time.

Ed Milewski:  Okay, out of Calgary?

Steve Gormley: We’re headquartered out of Calgary; we have offices in New York, Denver and Los Angeles, but I’m up in Toronto every other week. This is where all the action is in the cannabis industry. European or Canadian or even a lot of the South American ventures that are gaining traction and popularity now, they all come up to Canada for financial services, capital and financial advice, because this is the only mature market in the financial institutions surrounding cannabis. And even if we repeal federal prohibition in the United States, it’s still going to take half a decade to work out what the financial institutions are going to do, and by that point, people acquiring companies, and majors like Seagrams and companies and Diageo, they’re going to look to their brethren north of the border who have been doing this for a number of years, who have seven, eight, nine-figure transactions under their belt. They’re not just going to kick it to a Wall Street firm, you know, where the only qualification these guys have is that they did some research in college, if you know what I mean.

So Canada will, for the unforeseeable future, be the Wall Street of cannabis, and that’s why we’re here.

James West:   Okay. So getting back to your company, you’ve got this strategy to acquire companies, and as you say, it’s very tough to find a company that’s profitable. In fact, one might argue, even impossible. So how are you going to sort of address that disconnect between what you want to do and what you can do?

Steve Gormley: That’s a great question. To tell you the truth, there are some phenomenal companies out there, largely California-based, that have earnings and profits and are real strong businesses. You have to understand that anyone worth their salt in this market in the US got their start in the black market. That’s a very particular personality type, and in order to survive the black market, to then thrive and now go to the next step to legitimize, you have to have good standard business practices.

So there really are companies in the space with solid fundamentals and auditable financials; it’s just knowing who they are, and actually targeting the best of breed, which are largely off-market. That’s the way to go, and that’s where my seven years in the cannabis industry, being boots on the ground in the US, learning cultivation, learning dispensary operations, learning both public and private structures in the space, has served me, and will ultimately serve International Cannabrands. I’ve brought a world-class team on with me to help effectuate our business plan, and we have synergistic accretive acquisition pipeline that I think the market will respond really well to.

I think what you’re going to see from us over the coming weeks and months are very transparent press announcements based on fundamentals. We’re not going to be releasing hype, and that’s what’s going to distinguish us. We are an aggregator, and we are an aggregator of profitable businesses and world class assets that have brand recognition. And that’s going to be the distinction that ICL International Cannabrands brings to the market, as opposed to, you know, some of the usual suspects you mentioned earlier.

James West:   Right. Okay, so the, you recently closed a financing?

Steve Gormley: Yes.

James West:   And so, is that going to add – is that reflected in the share count of 80 million?

Steve Gormley: Yes, yes.

James West:   It is, okay.

Ed Milewski:  How much did you raise?

Steve Gormley: We did a small bridge round, $600,000 CDN. We also –

Ed Milewski:  At what price?

Steve Gormley: That was – it varied, depending on the group that came in and the timing of the group. All of it is, I encourage your viewers to check out our listings and check out all of our press releases; everything is there in the filings. But we also effectuated, we have a credit facility for up to $10 million CDN that we can draw down against. We would only do that to apply to acquisitions, but we’ve had tremendous traction and interest here on Bay Street as well as in Calgary and Vancouver, and I’m confident that, in the next coming weeks, we will raise the capital to close the La Vida Verde transaction that has become kind of a centrepiece to what we’re doing.

James West:   Okay, that’s interesting. So are you going to stick to, you know, growers and product manufacturers in the cannabis space? You’ve got this other company that’s more into the leasing side of it.

Steve Gormley: Correct. That tuck-in and that strategy is to bring into the portfolio companies that throw off cash. We want earnings. We want profits. We want to be able to announce and share with the market our monthly, weekly, quarterly earnings in certain circumstances. We want the market to see that International Cannabrands is a company that’s driven by fundamentals, not by exuberance or hype. And so brands obviously eat cash, and the brands we’re talking are actually profitable, and we want microbrands that have strong regional recognition in the markets they serve, that have the potential, when the time comes, to be franchise-able brands. And so when you look at the suite of product brands within the La Vida Verde family, you’ll observe that there are brands that are not only recognized and supported within California, but that have great brand recognition and name recognition across state borders, and even up here in Canada.

And so that’s really the profile we’re looking for, and as I’ve said from the outset, you’ve got to think the regional beer model. That’s really what we’re looking to achieve here. The way regional beers were rolled up, we want to do the same thing. We want smart brands that have a strong, dedicated, loyal consumer base in the markets that they serve, that serve as indicators, as harbingers of what would be a great national or international level brand, so that when that time comes, we’re perfectly positioned.

James West:   Okay. So, is the Julian Marley transaction still alive?

Steve Gormley: Yes. So, one of the things I’m happy to report is, we’re going through a rebrand there. We have recently released that we are entering the market with new packaging. Our focus is going to be to deliver very high quality cannabis products at a very low cost, to Millennials. That brand really speak to Millennial males. Now, naturally we want to capture everybody, but when you are a brand in cannabis, you really have to stick to your knitting if you want to grow and scale. And our intention is to come out of the gate with very sexy, sleek, Millennial-friendly packaging that is really going to knock the socks off the consumer, and to provide them with high-quality cannabis products at a price point that they can’t achieve anywhere else. And that’s really where the JUJU Royal brand is going to reside. It’s going to be a luxury brand for Millennials at an affordable price.

James West:   Interesting. Sounds like you’ve really got your sort of act together, there. Like, I mean, you’re saying all the things –

Ed Milewski:  If you do what you say you’re going to do, it should be a winner, right? Because you’re eloquent, you speak well, you articulate well –

Steve Gormley: Thank you, Sir.

Ed Milewski:  No, you do. And you know, you’ve seen a lot of guys come and go.

Steve Gormley: Look, I’m on the Midas Letter talking to Ed and James. I mean, it’s clear I have arrived. What more is there to say?

James West:   You’re already a success.

Steve Gormley: That’s right.

Ed Milewski:  I’ve got the envelope. I’m passing it underneath.

Steve Gormley: [laughter] James, I have your samples for later.

Ed Milewski:  James, feel free to put something in that envelope.

James West:   My contribution.

Ed Milewski:  Maybe some reefer or something.

James West:   Tell you what, Steve, that’s been a great introduction.

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