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SLANG Worldwide Inc (CNSX:SLNG) Bruce Linton Invests in Growing Global Brand Portfolio

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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 Inc (CNSX:SLNG) CEO Peter Miller joins Midas Letter to discuss the company’s footprint across North America and Europe and Bruce Linton’s recent investment. The company has a portfolio of brands distributed across 13 US states and Canada as well as exposure in Central America and Europe. Co-founder of Canopy Growth Corp, Bruce Linton, purchased 347,222 units of SLANG at a price of $0.72 per unit representing a vote of confidence in the fundamentals of SLANG’s business model. Linton’s support helps the company’s initiatives as it expands its portfolio of branded products and enters new markets.

Transcript

James West: Peter Miller joins me now. He’s the CEO of Slang Worldwide. Peter, welcome.

Peter Miller: Thanks for having me.

James West: Peter, let’s start quickly with your point of origin in the whole cannabis industry. When did you get involved, how did you get involved?

Peter Miller: Man, that’s almost seven years ago. I met somebody who was a home grower under the old system. it sounded very interesting, but didn’t sound very organized. Discovered that Health Canada was creating this more organized Federally legal commercial program, thought about the things that might make me capable of getting one of the early licenses, which included a family history in an agricultural area – small town called Creemore, where I thought we could build something pretty special.

And then my competitive advantage beyond that was just that I knew nothing about cannabis, and I knew nobody in cannabis, and as such, I had no record or anything that would make the government nervous in terms of licensing me. So, fast-forward to developing that facility, getting it licensed, coming together with another group of guys to form Mettrum Health Corp.; growing that business for the next few years, ultimately exiting to Canopy.

That first few years was my boot camp in the space.

James West: Oh, so you were with Mettrum, as well?

Peter Miller: Correct, yeah.

James West: Oh, that’s right. Okay, well, that’s fascinating. So fast-forward to today, tell me about the footprint of Slang Worldwide.

Peter Miller: So today, Slang Worldwide is across 13 states, Canada, we have exposure in Central America, Europe, and the whole concept is that our portfolio of branded products will be sold wherever those products can legally be sold. We’re not retailers; that avoids any channel conflict, meaning that when you own a lot of retail and you also have brands, other retailers don’t tend to want to carry your brands, because they see you as competitive.

James West: Sure.

Peter Miller: So we’re not retailers, but we touch pretty much every other part of the supply chain. We don’t own anything; not, sorry, we don’t own everything. We own a lot of stuff.

James West: Right.

Peter Miller: But we don’t think that you need to own everything to operate within a supply chain to get your finished goods to the cash register.

James West: Okay, and recently, Bruce Linton made an investment into your company. What’s the significance that can be read into that for investors in Slang?

Peter Miller: Well, I think it’s a huge vote of confidence in what we’re doing. Bruce had hundreds of opportunities and options, and he focused on a few. So as an investor in Slang, there’s great alignment of interests for him to offer all the insights he has into the space, which he’s developed over many years, and to open the door to some of his contacts where he thinks it’s appropriate, at which point it’s really up to us to make something of that.

So we don’t expect him, nor should anyone expect him, to move mountains and make it all happen for them. But his insights in the space, his views on the trends, and just his experience – anyone who’s written a significant cheque into the space, he’s probably met face to face.

James West: Right. Okay, so, what is Slang’s biggest sort of target in this whole cannabis space? I mean, you’re everywhere in the world, you’re vertically integrated across multiple segments of the market. Where is the focus?                 

Peter Miller: Well, we’re focused on mature, maturing markets where cannabis is readily available to adults, meaning we avoid the really early-stage, limited license markets, knowing that inevitably they become more developed, more mature markets that start looking much more consistent. So in Colorado, that would be our biggest market; that’s a $1.6 billion USD per year market, and you’ve seen trends evolve over the period of legalization from some element of vertical integration being mandatory, to people focusing on different parts of the supply chain there. And in that market, we have a variety of products across edibles, vape concentrate, and we’re moving into flower in a really exciting way.

James West: Okay, so there are over 480,000 acres under cultivation for hemp in the United States alone; call it 1,000 lbs of feedstock per acre, just for rough sort of back of napkin. 16 million pounds of CBD, if you average 5 percent CBD. Do you think that the explosion of outdoor hemp as a source of CBD is going to undermine the price and viability of that market by extension?

Peter Miller: I think it absolutely could. I think the potential overproduction of cultivation capacity generally is having kind of whipsaw effects on a lot of groups, not just hemp, but talk about hemp specifically because you brought it up. There is a huge, as you identified, amount of acreage under cultivation, but even on the processing side, I heard from a person that was the plant manager of one of the US’s largest coffee decaffeination facilities, and that facility was sold to a hemp processor. 

Now, we’re talking tens of thousands of pounds per run that they could extract crude resin out of. So I think ultimately that lends itself to our business model, where we’re not doing that all ourselves. We will buy ingredients, we’ll formulate them into a finished good under our brands, and we’ll wholesale them to retailers, which is how CPG works. You have your farmers selling to a Cargill-type aggregator of raw material, using brokers along the way. That product will be acquired by a CPG company that will turn that into a finished good, and then those finished goods will be wholesaled to retail in grocery, big box, whatever the case may be.

So I think that as the supply chain sorts itself out and finds an equilibrium, we’ll remain nimble and agile because we don’t have the burden of the wild overhead and huge commodity exposure, to just continue to grow a business responsibly and scale-ably.

James West: Great. What does your financial profile look like at this point in terms of revenue versus earnings?

Peter Miller: Sure. So last quarter, we announced revenue of just over $7 million. Pro forma, however, the acquisitions that we discussed and are all contemplated, it was in the low 20s, and we lost a few million dollars on an adjusted basis in the process. But our business model, as I mentioned, along the supply chain, doesn’t require the same capital that the fully integrated groups require, or folks that need to open a lot of stores or build out a lot of infrastructure. So we’re in a fortunate position that as the market indicates what it’s willing or not willing to do at any given time, i.e. if equity dries up, we can weather the storm better than most.

James West: Fantastic. When do you see the opportunity in the US opening up on a national basis?

Peter Miller: That’s really tricky, because different people have different views on how that would happen. Seeing Safe move through Congress was really encouraging, especially because I believe half the voting Republicans were in favour. So that’s the most bipartisan support of anything we’ve seen in a long time, and hopefully that momentum is carried through the Senate, which will make the banks more comfortable. Hopefully the exchanges become more comfortable, which could create liquidity just generally speaking.

Something like the States Act would be a huge bit of momentum, as well. But the ballot initiatives that happen on a state-by-state basis at every general and midterm election is really where the momentum has taken place in the past, and seeing new states come online through that process ultimately creates a situation where the vast majority of states have some sort of legal framework, and then it becomes much easier politically and in every way for the Federal government to then say, you know, this is how we feel about cannabis now that the people have spoken on a state-by-state basis.

James West: Sure. Where do you see the biggest opportunity for growth in a product category, across the whole cannabis industry?

Peter Miller: It’s tricky, because there’s not going to be, I don’t think, a wild new invention that totally makes people rethink cannabis. So when you look at the data, and you see dried flower, whether that’s bud or pre-rolls, being the dominant part of cannabis as a sector, and then below that is vape concentrates, edibles, when you break down each of those pieces, even within edibles you have gummies near the top; you have the newer things, like beverage, near the bottom. And within flower, you’re starting to see some segmentation.

So I think the biggest opportunity is the biggest part of the market, and that opportunity is for somebody to come in, not with a totally new invention, but is delivering value, delivering on their brand promise, whether that promise is on price or whether it’s based on quality, and I think there’s just going to be some intense competition where you’re duking it out just on fundamental regular blocking and tackling type initiatives.

James West: Yeah, that’s a good point. So price versus quality, I think it was John Fowler who said, nobody walks into a room and says, ‘Who’s got the cheap stuff?’ It’s always about who’s got the best stuff, which is one of my favourite comments ever. That being said, there is clear evidence across the consuming universe, especially as we’re able to see it in the Canadian system, that price sensitivity is quite the consideration for a lot of consumers, and in fact, the cheap stuff tends to win, but for a small segment of sort of more quality-forward connoisseur.

What portion of the audience, do you think, is sort of quality-oriented above price orientation?

Peter Miller: It’s definitely the minority, but it’s aspirational within a portfolio to have something like that that people can buy occasionally. One of the things that cannabis, one of the pricing dynamics that’s very different than alcohol, which we sometimes get compared to, is that within wine, for example, you could have four orders of magnitude in terms of pricing that someone may purchase within their lifetime. So $7 bottle, $70, $700, $7,000, for a very small part of the population on a very special occasion. Whereas cannabis, if you’re getting a few dollars more per gram, that would be very significant.So perhaps it’s more a craft beer, when you look at a pricing analogy.

In terms of what we see in the data, certainly the vast majority of sales are coming from that value tier part of the market, and if you look to places like California, which a lot of people see as a trend-setting market, one of the most popular brands in the entire state is a brand called Old Pal, and their whole concept, initially, was that it was shareable. It wasn’t, you know, that it was bad; it was, you know, lower canopy. And by managing your expectations really well, they created a positive consumer experience that may have been negative, if they said this is great product and you opened the bag and it’s small buds and a few sticks and a few seeds; you’d be very angry.

But if they come out and say, ‘This isn’t that good, but it’s a $15 eighth nicely packaged’ and you open it, and you’re like, oh, that’s better than not good. That’s actually okay! And so I think there’s an expectations management piece to that, kind of like, I think it was a Warren Buffet quote: if you tell someone you’re going to the ballet and it’s a rock concert, you tell someone they’re going to a rock concert and it’s a ballet, they’re going to be very angry. But if you tell them what they’re going to, and they go there and it is what they expected it to be, they’ll be very happy.

James West: Good point.

Peter Miller: And I think that’s going to happen with bud. Everyone wants to be premium, everyone is saying they’re premium; John’s group is one of the few that actually are premium, but most dollars are being spent on lower priced items, because the reality is, the average person is hundreds of dollars away from covering their monthly overhead personally, and they can’t always be buying the most expensive stuff.

James West: Great. Peter, let’s leave it there for now. That’s a great bit of advice, or rather, conversation. I just had a mental break, there. Thanks very much for joining me. We’ll come back to you soon. 

Peter Miller: Awesome.

James West: Have a great day. 

Peter Miller: Thanks for having me.

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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