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SLANG Worldwide (CNSX:SLNG) Branded Consumer Products Company Backed By Canopy Growth (TSE:WEED)

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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

SLANG Worldwide (CNSX:SLNG) is a branded consumer products company operating in the cannabis space. CEO Peter Miller reveals that the company is focused on creating regional brands.  Backed by industry powerhouse Canopy Growth Corp (TSE:WEED) (NYSE:CGC) (FRA:11L1), SLANG went public in January after raising $66 million. SLANG does not cultivate, as that process is capital intensive, nor is it a retailer, as the company does not want to compete with its customer base. Instead, SLANG focuses on the extraction through distribution stages. The company has a portfolio of dominant brands across all categories. SLANG’s branded products are in approximately 2600 stores and available in 14 countries. Operating in 10 states, Miller muses that that company was the original “multi-state operator.”

Transcript:

Narrator: SLANG Worldwide Incorporated is a cannabis-focused consumer packaged goods company focused on acquiring and developing regional brands, as well as creating new brands to meet the needs of cannabis consumers worldwide.

The company is backed by Canopy Growth Corporation and headquartered in Toronto. Investors valued the company at $645 million CAD prior to its IPO on the Canadian Securities Exchange on January 29, 2019.

SLANG trades under the ticker symbol SLNG.

Benjamin A. Smith: I’m with Peter Miller, the CEO of SLANG Worldwide. Peter, welcome to the program.

Peter Miller: Thanks for having me.

Benjamin A. Smith: Okay, well, you are a new entrant into the public markets; I believe your stock went live January 29th? So you’re only about a couple weeks old. At the time, you’ve issued 44 million subscription receipts, which raised about 66 million; you also had a private raise last summer as well. How is your cash position right now, and for the next, you know, two or three quarters going forward, as you, you know, seek to build out your company with a lot of, you know, large competitors doing the same?

Peter Miller: Yeah, so, we’re really lucky that everything we really do is really capital-light. We don’t do any cultivation at scale; we don’t do any retail. We find cultivation gets commoditized pretty quickly, and for the return you get, it’s incredibly capital-intensive building out indoor greenhouses, anything really other than outdoor.

And then on the retail side, we just don’t want to compete with our customers. Retailers are our customers, and if you have a chain of stores, it’s unlikely another chain of stores is interested in carrying your brands, and we can see that, you know, in the real world: mainstream grocers, any branded retail environment typically doesn’t carry its competitors’ products. We’re really light –

Benjamin A. Smith: So you don’t need a lot of capital to expand?

Peter Miller: No. We went from extraction through wholesale distribution; it’s very capital-light, and we leverage partnerships. We’re only interested in owning the pieces of the supply chain that we need to, to achieve our ultimate goal, which is getting products on shelves, as many shelves as possible, with our brands on them. And to that extent, we’ve done that better than almost anybody that I’m aware of.

Benjamin A. Smith: Okay, well, speaking of partnerships, you have a well-known affiliation with Canopy Growth Corp. Obviously that’s big, I understand you have a lot of different companies out there. Can you explain how – are they a financial backer, or are they an active participant in your model? How exactly does that relationship work?

Peter Miller: Yeah, so the same way we have the biggest distribution footprint in the US, they have the largest in Canada. So very tangibly, we own a licensed producer together that allows our brands to get into the Canadian market and international markets, but the relationship goes back a little earlier. I was the very fortunate winner of an early license in Canada’s vertically integrated, limited model, six years ago, and ultimately as a co-founder of Mettrum Health Corp, and that company being acquired by Canopy, we started developing a relationship, and they started to see what we were doing, my co-founder of SLANG Billy Levy and I, on the consumer packaged goods side.

That experience in Canada really informed our whole view in the space, which is that this is going to brands, the markets will mature, regulation will normalize, and what we saw in the US over the years that we were developing the Canadian business was really exciting. You saw things shift from the Mason jar with bud to more sophisticated finished goods, branded, and that was what was really exciting to us.

So as we started building SLANG on the belief that ultimately brands would be the most important, and sort of inquiring and making investments, the Canopy folks who got to know us a little bit better post the Mettrum transaction, I think, saw an opportunity to get involved in that side of things.

Obviously with their position in owning US assets, we were limited in what we could do, so they couldn’t make a direct equity investment, but they created a pretty creative warrant that allows them to acquire equity in SLANG when they have comfort with the Federal law in the US.

Benjamin A. Smith: Okay. So they could basically more of an equity stake in your company going forward. Do they help you manage, do they provide advice on management with your company, either behind the scenes or overtly?

Peter Miller: Overtly, no. I think there’s a healthy back and forth, basically if they see something interesting or we see something industry. You know, we’re industry friends and allies, so we’ll compare notes, we’ll point each other to something that might interest the other.

We’re excited about getting our brands into the Canadian market through their channels this Fall. Our dominant products are more on the vapes, edibles, sort of value-added finished good, non-bud side of things. So later this year or next year it’s going to be a really exciting lineup.

Benjamin A. Smith: Okay. So do you have – are you planning on introducing your own brands, or are you going to white label brands under another name?

Peter Miller: So SLANG is the holding company; the star of the show are the brands themselves that consumers can purchase, whether you’re in Portland, Maine, Portland, Oregon, Portland, Jamaica. The O Pen, for example, is in 10 states and growing. That product was one of the first 510-thread vape cartridges in the US, and its lifetime sales at the cash register are approximately $200 million USD, so that’s a real brand with real penetration that consumers have been interacting with for a lot of years.

We have brands that have been developed more recently, like Pressies, a pressed pill, does incredibly well. It’s a point of sale impulse buy at the cash register; it’s opened a lot of doors. We have some great edible products; District Edibles had a great gummi brand, we’ve got Magic Buzz, a beverage product, and we’re excited to bring branded bud at the really high end of the market to the states we operate in this year as well, under the Greenhouse & Strain Hunters names.

So we’re always on the lookout for exciting brands. We’re developing things internally all of the time. Data really has to guide what we put our resources behind, but at this point we have one of the most dominant portfolio brands across almost every major category, with sales in about 2,600 stores across all of the products. We were the original MSO before it was an acronym; we’ve been in multiple US states for a handful of years, and we’re just really excited about building that portfolio of brands, both growing it organically, through acquisition, etcetera.

Benjamin A. Smith: So it sounds like you’re in the same industry as an Origin House, for example. Are you seeing a lot of competition with some of the other distributors out there who take on different labels and do the outside distributing? Or is that cutting into your margin? How does that work? How is your business in relation to, say, an Origin House?

Peter Miller: Yeah, so for example, I think they’re more interested in the distribution side of things than brand ownership and development. And in some states, distribution requires a license, like California. But we self-distribute. So it’s so early on that I don’t think that we’ve seen a compelling reason to use a third party distributor; no one has the scale that we have. So ultimately, we’re lucky to sell a product that is very high value per gram of weight; it’s not like we’re distributing liquids, you know, wholesale for $0.25 and weigh a pound.

Benjamin A. Smith: Like a bottle of water.

Peter Miller: Exactly. So logistically, it’s not that complex to ship the product. So distributors, for us, would be most valuable if they could open doors. But to that end, we’ve been able to open more doors in the cannabis-centric retail than anybody. So I think Origin House, while I don’t know a ton about it, I wouldn’t really use it as a comp.

We have a ton of competition at the ground level. Our brands compete in mature markets in some categories with dozens of competitors. So we see those as our, that as our competition. In the capital markets, I don’t think anybody’s taken as brand-focused an approach as we have.

Benjamin A. Smith: Okay. So how does the company book revenues? When I go to your website, I see a lot of great brands out there, but I don’t see any sort of checkout or anything like that. So how does the company actually realize revenue on their income statement?

Peter Miller: Sure. So you’re correct, we don’t do direct to consumer online; that’s really tricky on the THC side right now.

Benjamin A. Smith: The CBD side, no?

Peter Miller: The CBD side will open up on that front for sure, and we have some ideas on how to get into that market. I think fundamentally, CBD will be a different skill set in terms of opening channels; more traditional retailers are embracing CBD, which is really exciting. And we’ve been really able to open a lot of THC doors.

But CBD aside, back to your revenue question, imagine – and I’ll maybe aspirationally use Coca Cola as an example – that filling a can, adding syrup and then putting the carbonated water in that was only legal on a state by state level. They actually have, historically, used bottlers to get into more territories on a capital-light model, the same way we do. But they’d only be able to book the revenue that can and that syrup.

So similarly, what we do is, we say, Here’s packaging, here’s non-cannabis ingredients, here’s a very specific set of SOPs for making sure that that product is consistent across all of the markets, and then we’ll look for partners and third parties to make sure that that product is produced exactly the same way, market to market, and then ultimately our revenues will be the licensing of that IP, the sale of that packaging, etcetera. And they’ll be drop-shipping to retailers whose doors we’ve opened for them.

Benjamin A. Smith: Terrific. And lastly, what do SLANG Worldwide investors have to look forward to in the next, say, two-three quarters?

Peter Miller: I was joking earlier that cannabis moves in dog years, it seems like, so even our team and in our 30s, we’ve been at this for six years, which feels like an eternity in cannabis time. So it’s really hard to say what the next two to three quarters hold. But it’s going to be more growth, getting into more doors, getting our products on more shelves, and everything on the supply chain will be looked at in terms of what’s pragmatic to achieve our goals of creating as many branded experiences as possible for cannabis consumers.

Benjamin A. Smith: Sounds good. Peter, thank you for joining us on the program; it was a great introduction to your company. We look forward to following your story going forward.

Peter Miller: Awesome. Thanks for having me. Appreciate it.

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

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