Dixie Brands Inc (CNSX:DIXI.U) (OTCMKTS:DXBRF) (FRA:0QV) CEO Chuck Smith is thrilled with the company’s fiscal 2018 report. Dixie increased revenue 73 percent YOY and more than doubled its revenue QOQ. Smith highlights that Dixie’s margins also went up, a sign the company is becoming more efficient. While Dixie’s net loss was over $21 million, Smith emphasizes that most of that amount was non-cash losses attributed to both the acquisition cost of Dixie’s RTO and of converting debt. Smith believes the company’s recent JV with Khiron Life Sciences Corp (CVE:KHRN) (OTCMKTS:KHRNF) (FRA:4KH) provides Dixie with a first mover advantage in Latin America and a competitive advantage in Europe. In addition, it gives Dixie the opportunity to bring a growing cosmetics brand, Kuida, to the American market. Smith notes that the Khiron partnership augments Dixie’s already extensive line of products and suggests that Dixie’s low-dose formulation expertise positions the company favourably as the popularity of CBD products increases.
Narrator: Dixie Brands, Inc. designs, manufactures and distributes cannabis infused products. It makes hemp oil-derived human and animal dietary supplements for use in relaxation, pain relief, immunity development and wellness, under the Aceso and Therabis wellness names in the United States, Canada, Mexico, Australia, and New Zealand.
The company also owns the intellectual property, product branding, formulations, proprietary ingredients and preparation methods related to a variety of cannabis-infused products, and designs and distributes packaging, ingredients, and non-cannabis consumer goods.
Dixie Brands, Inc. was founded in 2010 and is headquartered in Denver, Colorado. Dixie Brands trades under DIXI.U on the CSE.
James West: Chuck Smith joins me now. He’s the CEO of Dixie Brands, Inc., trading on the CSE under the symbol DIXI.U. Chuck, welcome back.
Chuck Smith: Hey, I’m happy to be here, James. Thank you very much.
James West: You bet. Chuck, let’s start with an overview of your financial results announced for year-end December 31st. Give me the highlights.
Chuck Smith: Yeah, the highlights are that the company increased revenue year-over-year by 73 percent, and in the quarter-over-quarter, we more than doubled revenues. I’m very proud of that. Our margins went up too, which is an indication that we continue to become more efficient in our manufacturing processes and building these SOPs to be reputable and really drive costs out and consistency and quality of production out.
That really sets a great platform for us moving forward, as we expand in the marketplace.
James West: Sure. Okay, so you know, the business of building a big, branded company in a new industry is obviously very expensive, and so, you know, every company in the space is essentially, you know, losing money to build market share at this point. Dixie Brands is no exception. At what point in your evolution does that scenario become a story about profit and positive cash flow?
Chuck Smith: Sure. So I think a couple things, James. Number one, in the financials, as you looked at it, we had a very significant loss, but most of that loss was non-cash loss, and a lot of it, in fact the majority of it, really had to do with, number one, taking the company public; the cost of the acquisition of the RTO, which again was a non-cash transaction; the conversion rates of converting debt into equity that was part of our Series C raise, which all of those things, even though they’re non-cash, they do contribute to a loss. They clearly put the company in a really solid position going forward from financial reporting. In essence, we used this process to clean those things up and get the company in a really solid position.
From an operational perspective, you are correct; it costs a lot of money to build infrastructure, build team, and get these products into market into distribution. I’m highly confident that the shareholders are going to see the company move toward profitability later on this year, and more importantly, see us build a foundation for consistent and repeatable results.
James West: Right, fantastic. And so, in your international strategy, tell me about how is your evolution going with Khiron Life Sciences.
Chuck Smith: Again, something really exciting and something, you know, frankly, another thing that I’m proud of the company, because you can look at the numbers and say Geez, the numbers weren’t that big, Chuck, and you know, what are you guys really doing? I want your shareholders to – or the viewers, and our shareholders, to realize the company just raised money and closed that fundraising at the end of October, took the company public at the end of November. So really, there wasn’t a whole lot of material change that was going to happen to the company in 2018, and frankly, you know, the first quarter of ’19 is really the beginning of deploying that capital.
But what I can tell you is, we’ve made some really transformative moves in the first quarter. The Khiron JV is probably the biggest. It gives Dixie complete access to the Latin American marketplace plus Mexico, in a partnership of two like-minded companies that have great synergy together. And really, it’s going to give us a first mover advantage.
The other opportunity is really bringing their award-winning cosmeceutical line, Kuida, to the US market, which is what our teams are working on aggressively right now.
James West: Okay, cool. Do you see that the consumer demand for beverages and consumer packaged goods, edibles, like, that kind of stuff – do you see that becoming more mainstream as people try this stuff for the first time? Or do you think that the audience is going to be more or less derived from the existing coterie of the population that consumes cannabis now?
Chuck Smith: No, and I think the data is absolutely showing us that more consumers are coming into the industry. More traditional non-cannabis consumers are coming into the industry, and they’re looking for alternatives to either their current wellness platform, which may be, you know, either other supplements or pharmaceutical drugs, or they’re looking as an alternative to their social experiences with alcohol.
So we’re absolutely seeing great adoption by the consumers coming into dispensaries, fastest-growing segment 55 years and older. Those people are not coming in to buy dried flower to smoke or probably even concentrates; they’re looking for a properly dosed, consistent and high quality ingestible products or topical products.
James West: You bet. Do you think Europe’s going to be a big market for consumer packaged goods?
Chuck Smith: I do, and I think we’re already seeing that with the adoption of CBD-based, or hemp-derived CBD based products over in Europe, as they start to roll out. But again, it’s not any different than Latin America. I was just down at the CannaMexico conference a week ago, met with all the country managers of Khiron; I can tell you they’re extremely excited on a country-by-country basis of bringing our formulated products to those countries, but it’s going to be a slow process, because these countries are putting in their regulatory infrastructure, really deciding how they’re going to distribute these products.
And the good news is, there isn’t a product, in my opinion, other than a combustible product like flower, that Dixie doesn’t already make and hasn’t already formulated, packaged and understood how to distribute. So that really gives us a leg up, whether it’s Latin America, Canada eventually toward the end of the year, and certainly Europe.
James West: CBDs are sort of taking out – or taking off, rather, in a big sort of lead on over THC products in that CBD is really kind of useful on a daily basis for everything from pets’ ailments to human sleeplessness. It’s easy to get, it’s not prescribed per se…do you think that there’s a chance that THC will catch up to CBD, or do you think there will always be this disconnect between CBD products, which are seem to have a universal appeal, as opposed to THC products that seem to be limited to people who want to sort of explore the psychotropic possibilities?
Chuck Smith: I think you can just correlate that to alcohol. Not everybody in the world drinks alcohol, either, but quite a lot of people look after their own personal wellness, and certainly people generally spend more money on their pets than they do themselves in terms of health and wellness. So we really see the CBD category as exciting for a broader base of consumer, but again, we do see THC-infused products as really starting to gain a foothold in mainstream consumer adoption. Again, as an alternative, potentially, to, you know, consuming alcohol.
James West: Yeah. Chuck, you’ve got such a wide variety of products on your website: elixirs, chocolates, dewdrops, gummies, mince and tarts, bursts, topicals, tablets…what is the most popular product that you sell?
Chuck Smith: You know, James, when the company started the flagship product was drinks, and so we have a deep, rich heritage in that. We understand how to deliver that liquid-based product so it’s consistent, it’s homogenous, it has great taste profiles, and it’s safe and reliable. So you know, that’s obviously a cornerstone of our portfolio.
But we also have really spent a lot of time bringing products to the market that are going to be, again, as you’ve called it, even more mainstream. So you know, confection products like gummies, that’s the largest-selling category both in our portfolio as well as in the industry. We also have a lot of expertise in low-dose products, so you’ll see a lot of products from us that are 5 milligrams or less, because we know that consumers want to have, especially new consumers in the industry, they’re not really looking for everything about the full psychotropic approach; they’re looking for things that are maybe even more consistent with what they’re used to, like a glass of Chardonnay. So maybe they take one of our mints, and that gives them kind of the same feeling and the same duration.
So they become very comfortable with that format. So I think, you know, those are very popular products in the portfolio. And then finally, our topical products – that is consistently, month-over-month, a great revenue generator for the company, and that has no psychotropic effect. They use it for pure wellness, to help with minor aches and pains, skin irritation, and things like that. So we do have a broad portfolio because we have a broad consumer need that we’re catering to.
James West: Fantastic. Okay, well, that’s great, Chuck. That’s a great update. Clearly you guys are knocking it out of the park, and it’s a pleasure to see that. Thanks very much for joining me today, we’ll come back to you soon.
Chuck Smith: I appreciate it very much. Thank you, James.
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.