Dixie Brands Inc (CNSX:DIXI.U) CEO on Joint Venture with Khiron Life Sciences Corp (CVE:KHRN)
Dixie Brands Inc (CNSX:DIXI.U) (FRA:0QV) designs and manufactures cannabis relief products. CEO Chuck Smith shares details of Dixie’s joint venture with Khiron Life Sciences Corp (CVE:KHRN) (OTCMKTS:KHRNF) (FRA:4KH). The agreement gives Dixie access to the underdeveloped Central and South American cannabis space, a market of more than 600 million customers. Smith believes the partnership makes sense for both companies as Khiron’s compliance and Latin American footprint is unmatched, while Dixie has an extensive portfolio of CBD and THC products. The passage of the Farm Bill opens up broad scale distribution options, which the company is prepared for with established products such as its CBD pet platform and its human wellness products. Dixie’s goal is to be a global leader in cannabis consumer packaged goods and the company plans to expand to 4-6 news states in 2019.
Chuck Smith: The Khiron deal is transformational, you know, for the company, and I can’t tell you how excited I am about it. This really opens up 600-plus-million potential consumers for a region that has up to this point been under-developed and under-tapped for the cannabis market that is growing very fast. As you can see the various companies coming online with either a medical regime or a CBD and THC regime.
And you know, I think where these two companies, the synergy really came into play, is that Khiron has an incredible team for compliance, regulatory understanding of the landscape infrastructure, and what they didn’t have yet, and they were starting to develop, is a broad portfolio of products that allows them a really great time to market advantage.
On the Dixie side, we have that portfolio; over 100 products, 15 different delivery systems, combination and THC and CBD-oriented products, both targeted to medical as well as adult use. So the joint venture is really going to allow us both time to market in a fast-growing region.
Benjamin Smith: Now, one of the things I’ve found interesting about this joint venture is that there’s very few MSOs, multi-state-operators, in the US, who have any dealings or any assets in Latin America. And obviously you’re breaking the mold with that, you know, with this joint venture. So is it fair to say that Dixie Brands is one of the first MSOs that will have any sort of footprint in Latin America?
Chuck Smith: Well, I, you know, certainly we looked at this as an opportunity to leverage the things that we bring with a great partner like Khiron and leveraging what they bring. So in this case, you know, the sum of one plus one is certainly going to equal a lot more than two. I think some of the other MSOs are talking about, they have very complicated business models which they have to execute which take a lot of capital: cultivating, they’re in some cases manufacturing, and they’re also building up broad retail.
Dixie’s different. We are only a house of brands and a wholesale manufacturer, and we own the sales and marketing assets into each of our respective states. So we’re very singularly focused on being the highest quality consumer products manufacturer, as well as a great partner to dispensaries or retailers in the field with our sales and marketing assets.
So maybe that gave us a little bit more opportunity to explore something as transformational as Latin America.
Benjamin Smith: Now, would you consider yourself also sort of a brands company in a way, in the mold of a Green Growth Brands? I’m sure you’re familiar with them. Or are you sort of taking a hybrid take on things where you’re vertically integrated but there’s not one specific genre that you’re really, you know, that stands out more than the others? How would you describe your company in that regard?
Chuck Smith: Sure. So I think, you know, we’re transforming as well. So when Dixie started almost 10 years ago now, I would say you could call us a branded house. We built a portfolio of products; that brand was Dixie. We really tried to get the patient at that time, and now the consumer, to really understand and trust what Dixie as a brand was bringing.
But as we’ve now evolved and as the marketplace is becoming much more ubiquitous in the United States and now globally, I’m really moving the company into a house of brands concept. So the fact is, we have a broad portfolio of incredible technology. Having done this for as long as we have, we really understand formulation, packaging, and compliance, those kind of things. But that now lends itself, as we build our manufacturing and distribution footprint across the US and elsewhere across the globe, to be able to innovate new brands or acquire brands that maybe don’t have the ability or have the desire to try and invest in that broad national and now international expansion.
So I think we’ve become very attractive to brands that maybe are doing a great job in California but have to figure out how to take that across the country. They can come to Dixie, and we can put them onto a very impressive and experienced manufacturing and distribution platform.
Benjamin Smith: And I take it that the Farm Bill Act that was passed late last year, is that, does that play into your strategy going forward? I know you’re involved with CBD oil extraction, and you’re probably planning for that eventual market to open up in the US. How does the Farm Bill, how do you view that, and how’s it going to affect your operations of being able to farm hemp and take that feedstock and convert it into CBD oil?
Chuck Smith: Sure, great question, thank you. Well one thing that hopefully you know, and your viewers will know: we’ve been actually in CBD wellness products for quite a long time, and in fact, we have two companies, standalone companies that we own – Therabis, which is a CBD wellness platform targeted to pets; today it is focused on dogs, and very soon we’re introducing some other products, expanding that portfolio. And then Aceso Wellness, which is a human dietary supplement which uses hemp-derived CBD as a base.
We have actually been formulating and building these products for the last three years and are now starting to really see broad-scale commercial distribution opportunities. So whereas we don’t have to start innovating them now that the hemp Farm Bill was approved; we’ve already been building the products. Now what we see is a lot of big-box retailers or traditional food, drug and mass companies coming to us and saying, okay, we’re now comfortable…as our products are already …
Ed Milewski: I can’t hear him.
Benjamin Smith: Chuck, it seems like our connection cut out there. Can you hear me now?
Chuck Smith: I can hear you great, and that’s too bad, because that was really a good answer. [laughter]
Benjamin Smith: Well, you know what? I’ll give you a chance to follow up on that. Since I have you, since I have you online and the Farm Bill has gone through, I’d like to get your take on what do you expect, with all this feedstock about to be grown, eventual feedstock from the hemp fields in Kentucky and all over the US, what do you expect is going to happen to the price of CBD oil going forward? I think most of us agree that it’s going to decline, it’s going to materially decline, and that’s going to open up the market; you know, it’s obviously a pretty expensive product right now.
But, how do you anticipate a declining CBD oil price, when do you expect that to happen? Will it happen in 2019 or beyond? And second question to that is, how do you – how does falling prices, how is that going to help your margins, and how do you expect Dixie brands to capitalize on falling CBD oil prices into your existing products?
Chuck Smith: Sure. So just to be clear, can you hear me okay now?
Benjamin Smith: Yeah, we can hear you.
Chuck Smith: Okay, fantastic. So I think there’s a couple different, that’s a broad question, there’s a couple different ways…I’ll try and keep it concise. We’re already seeing the raw material input pricing come down, and so even though the Farm Bill has really just come into play and we’re seeing these broad-scale cultivations start to come out of the ground, we are already seeing that competitive pressure on the input side.
So that’s a good thing for us, you know, as a manufacturer. We get to hopefully improve margins, but also improve the consistency, quality, and reliability of our supply chain. And so that’s really important to a company like ours, because once we get distribution, once we get retail space, we can’t afford to be out of stock because for some reason there’s a supply chain shortage. So this really gives us a lot more optionality to make sure that we can keep up with our increasing demand, which is, you know, certainly top of mind for us.
Secondly, you know, it’s not all about getting the cheapest price, because what you really want on the other side is a partner that you know is going to deliver high quality and consistent supply. And also I think what we’re going to see going forward are these cultivators are going to start experimenting and grow at volume other kind of cannabinoids, whether it’s CBG, CBN, we’re going to start seeing that proliferate as well, and there’s so many more applications that a formulator and products company like ours can expand our portfolio to.
So I do think we’re seeing that improved margin capability now, but I think it’s going to allow us to have more access to developing products and getting them out to this big consumer need that’s happening.
Benjamin Smith: Okay, great answer. We also have a question from the audience has just come in. Chuck, a person online names James Weston, he asks, can Dixie sell with Khiron in Mexico, as Dixie had a deal in Mexico with Auxly. Is that deal still valid for Mexico?
Chuck Smith: Yes, and you know, Auxly is a good partner of ours in Canada, and obviously they have some optionality on some of our technology in Mexico. We certainly have been in conversations with them as to, you know, how we’re going to, you know, continue to work together with them in Mexico. Clearly Canada is a no-brainer; we’re working with them today.
One thing I should say is, Auxly doesn’t have licensing to all of the technology that Khiron has, so there’s certain things that we can do straightforward with Khiron today in Mexico; there’s other things that we’ll, you know, certainly work with Auxly to see if it’s appropriate for them to do it, or if, you know, we want to work jointly to leverage the Khiron relationships that are down there.
Benjamin Smith: Okay, terrific. And –
Ed Milewski: Hey, Chuck, Ed Milewski here. When you went public here, was it about three months ago?
Chuck Smith: November 29th, Ed.
Ed Milewski: And how much money did you raise then?
Chuck Smith: So we actually didn’t raise money at the public offering; we had a Series C round, a pre-RTO round. It was originally subscribed for 20 million at a $80 million pre-money valuation. We were over-subscribed, fortunately, so we raised that to 25 million and filled that very quickly. And then went into the public offering and closed the RTO again on November 29th, which, for a record, was probably the absolutely worst day we could have ever brought the company public, because the entire month of December sold off.
Ed Milewski: Right, right. And how much cash are you sitting on right now?
Chuck Smith: Well, just for, I can talk to you about where we are, you know, make sure I don’t say anything I’m not supposed to disclose.
Ed Milewski: Sure.
Chuck Smith: We have significant cash reserves. We’ll be issuing our year-end financial statements, which are undergoing their full audit right now, so our fully audited 2018 statements out within the next 30 to 45 days. But we have cash reserves for our business plan that we forecasted previously for 2019.
Ed Milewski: Very good. Thanks, Chuck.
Benjamin Smith: Okay, and finally, Chuck, one last question: what do investors in Dixie Brands have to look forward to in the next two, three quarters? Do you have any exciting events on the horizons, you know, perhaps another joint venture possibility? Whatever you can tell us, please do.
Chuck Smith: Sure. Yeah, pre-November 29th I used to talk a lot about what we were going to do. Now I’ve been told I can’t talk about that as much, but look, there’s a Michigan deal that I think you’re aware of, where we announced our joint venture with Joint Labs in Michigan, the first fully vertically integrated producer there in Michigan. Really excited about that, and I think what your listeners should take away is that that is the first indication of us meeting the expectation that we set at the time of the RTO. We are going to open between four and six new states in the United States here in 2019; that will give us a footprint of up to 10 controlled manufacturing and distribution facilities in the US.
The Khiron deal was a surprise to everybody. We’ve been working on it for a while, but it wasn’t something on our plan. So you know, our objective is to be the global leader in CPG-oriented products for both the THC and the CBD industry, and I think these two announcements the last two weeks are just the first of many to solidify that.
Benjamin Smith: Great update, Chuck. Thank you for joining us on the program; we look forward to following your story as time goes on.
Chuck Smith: I appreciate it. Thanks for having me on, guys.
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