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Green Growth Brands (CNSX:GGB) Opens 150th Store

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Midas Letter

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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.

Green Growth Brands (CNSX:GGB) (OTCMKTS:GGBXF) Peter Horvarth joins Midas Letter to provide a company update, including the opening of their 150th store. Green Growth Brands is a lifestyle oriented, consumer products company that celebrates health, wellness, and happiness. Drawing upon his experience with Victoria’s Secret, Abercrombie & Fitch and American Eagle, Peter discusses succeeding in the consumer packaged goods industry and how it related to CBD branding. Given the lower than anticipated performance of the cannabis market, Peter answers what Green Growth expects to achieve financially in the next twelve and twenty four months.

Transcript

James West: I’m here with Peter Horvath now, CEO of Green Growth Brands. Peter, welcome back.

Peter Horvath: Hey, thanks for having me back, it’s great. 

James West: Peter, congratulations on opening your 150th CBD store. Tell me about that event and what it means for the whole Green Growth Brands.

Peter Horvath: It’s amazing. It’s like, a year ago, we were – in this industry, you get to talk about your business before you have one, and that’s what we were doing. And it only took five months from no stores, no customers, to 150 shops, and we’re going to be at 209 by the end of this month, in front of a billion footsteps, because we are in the best locations through our partnerships with Simon Property Group, Brookfield, Westfield, the other developers.

So, and think about it: in cannabis, there’s companies that have been at this for eight to ten years that might have two dozen, maybe two and a half dozen dispensaries open; it takes forever to open dispensaries. It’s not easy.

James West: Right.

Peter Horvath: This is something we could do in months. So we’re excited to be in front of all those consumers.

James West: Sure. And as a consumer packaged goods specialist of some renown, how important is the branding and the packaging to the consumers of CBD products, which are now prolific throughout the universe? I mean, I get five to seven offers to buy CBDs online every day, which, of course, I don’t take them up on, because, well, I’m in Canada; I can get it down the street. But in the United States, it’s very much a consumer packaged good product.

Peter Horvath: Yeah. So our approach, we looked at what everyone else was doing. We’ve got a product room that I love when people come through our office, we go into the product room: we have everybody else’s product, and encourage everyone, including our associates, to try it. So the way we approach is, we’re like, we think the formulations have come from a nutraceutical perspective, because they don’t measure up to the other personal care standards that we would consider acceptable. And I’ve got all these people that have worked in the beauty and personal care industry for decades, so I just said to them, Look, I want you to make product that can bring the benefits of CBD, but the formulation should feel good, should smell good, and should be in an incredible value.

And with all these stores that we have in front of, you know, like I said, a billion footsteps just in these first 200 malls, you know, we’re taking a mass approach. We’re like, let’s make it accessible. Let’s remove all the barriers to entry; let’s focus on topicals, that’s the first thing, so we don’t have to age restrict the interaction with our assortment. Let’s make the formulations on par with a Kiehl’s and Aveda products that are selling for twice as much as we sell. And then, let’s give it CBD. So we’re using isolate, we’re using the molecule. In theory, it’s an anti-inflammatory; we’ll let our customers make the claims, we don’t make claims. And we pair with aromatherapy.

So I think the approach we’re taking is, let’s make product that’s going to be mass, is priced at mass, and is accessible, and isn’t in a bodega or a nutraceutical or a head shop, but is actually right in front of your favourite, you know, other brands that you shop. And you’ve got someone who’s knowledgeable, and it’s an assortment you can navigate. So, one long sentence, but that’s what we’re doing.

James West: Cool. In terms of the demographic of CBD consumer, is it, at this point, being, is it completely broad-based across the consumer spectrum? Or, is it very sort of niche at this point, and does that create complications for you from a branding perspective?

Peter Horvath: So I’m going to reveal, you know, our learning. So we were like, Oh, we’re going to be all about Millennials and Centennials. So the idea was 35 and under, because we knew that market from American Eagle, most recently. And that’s usually the market people are focused on, and we thought, okay, let’s make the packaging, using consumer products, you know, their approach is to make the packaging female-friendly, because that’s who’s going to make the decision, but don’t make it so female that men won’t buy it.

So we took that approach. So, who do you think ended up – the first customer’s, like, a 65 year old guy with a tool belt. And you know, so what we’re seeing is, this democratic view of customers. We’re not seeing an age or a gender bias; we’re not seeing a demographic bias. So that’s interesting to me.

Now, it might change, as the brands mature and as our business grows, but right now, it looks like, if you go to our shops, you’re going to see a sign that says CBD For All. It really is, that’s our headline. It appears to be for everybody, and obviously people come to us with different problems they want to solve. Pain relief, sleep therapy, you know, even just face care, which is just a – face care, you don’t need CBD to do, but CBD might be better.

So we’re waiting to hear from our customers, what do they think of all that.

James West: Right. I had a houseguest who was using our CBD, which is throughout the house as eye cream. And we thought, well, we didn’t say anything, but we thought, well, this is interesting, but she’s using $160 per 30 ml jar of eye cream, and of course, we weren’t going to, you know, mention anything. But so that’s my next question: How important is price to the consumer in using topicals? I mean, the spectrum of available products online seems to be in this price constriction direction. Is that going to influence the mainstream consumer model at all?

Peter Horvath: Well, I don’t know. Here’s the hypothesis: We looked at the pricing, and yeah, we saw that, we got it down to a per-milligram of CBD. We’re just looking at, so what’s your retail price per milligram of CBD? And what we saw, people are like, $0.40. $0.35. Some people were even higher. We’re selling it at $0.07 per milligram. So what that means is, we’re inexpensive, and we’re tending to put heavy dosage of CBD in our product. And that is because we come from a world, you know, the best brands in the world, where you’re not looking at how do I make this cheaper; you’re looking at, how do I make people want it more?

And if I’m happy to increase the cost to me, if it makes it less likely to take a markdown because people have got to have it. So the approach we’ve taken, you know, so there is, you’re right: if you look at everybody else, it’s expensive. It doesn’t need to be. So what they’re getting is an incredible margin rate and not much in the way of sales. I want a ton of sales at a very healthy margin rate.

James West: Sure.

Peter Horvath: You know, that’s the choice. It’s basically, you know, sell to the masses, dial other classes. That’s the world we come from. And again, we’re leaning into what we know. What our competitors know, there’s lots of ways to win in this industry, and they’ve picked their path. We’ve picked one that’s about mass, about value, and about efficacy and quality in the formulations. Our beauty product, our health and wellness product, will stand up against health and wellness product without CBD, and we’ve done blind testing, and it tells us it stands up and rates at the highest level.

So in addition, we put CBD in it. I think everyone else isn’t really looking at it that way; they’re just like, we’re going to bring the benefits of CBD to the world, but they’re not putting it in familiar formulations, and formulations, like it or not, we buy with our nose, most often. 

James West: Okay, interesting. How important is your – so you know, you’re behind some of the greatest successes in consumer packaged goods; Victoria’s Secret, American Eagle – how important is that experience going to be, and how will we see that reflected in your CBD branding?

Peter Horvath: Yeah, so it’s important, because we were with businesses that were struggling to stay relevant as consumer patterns shifted. And those two businesses, at the times I was there, did a good job. Now, one of them has kind of fallen off, but American Eagle in particular, you know, was a teen retailer when Abercrombie and them, they were it. Ten years later, twelve years later, they figured out how to stay relevant, but part of it is customer patterning. Get close to your customer, study all your competition, and then be aware of general trends, whether it’s media or entertainment. Just understand the world that your consumers live in, because your job as a merchant is to look around corners.

It isn’t about, you know, in this cannabis industry, everyone’s talking about key performance indicators, and loyalty programs – all stuff we were all talking about in the late 80s, you know? And so, you know, it’s like, cannabis industry, stop trying to emulate the 80s and 90s. do what the best in the world are doing right now, which is, they’re looking around the corner trying to figure out what consumers are going to want in the next five years. And just because cannabis and CBD right now appear to have, you know, endless demand, prepare yourself for the world where you have to actually compete. And the only way you can do that is to anticipate where the world is going, regardless of your product categories.

So that’s what we’ve brought to our approach. In cannabis, we’re looking at it as localization, farm to table, if you will. To juxtapose that, the paradox is this, wow, so you’re in 200 malls? It’s like yeah, because we have access to the distribution, because nobody has done anything fresh in terms of kiosks in the middle of the malls, and we’re going to do that, and we’re the first ones to be vertical and have a broad assortment. So let’s, you know, leverage our relationships with the developers and just go for it.

And the result that might happen – we’ll see what happens. It’s going to be very interesting.

James West: Yeah, you bet. Okay, so this is, I think this is the fourth time that the whole cannabis industry has revalued itself to the downside after extremely exuberant rises to unprecedented levels. It always seems the downside is triggered by disappointing earnings in an industry where the speculative anticipation has now converted into an expectation for actual financial performance. How does Green Growth Brands sort of look out at the next 12 and 24 months in that context?

Peter Horvath: Well, you know, we’re saying the things that you’re going to hear from everybody else, because they’re pretty obvious, which is, you know, when are you going to be cash flow positive? When are you no longer need to be funded by the markets? Obviously, as you look at WeWork and Heliton, it’s on everyone’s mind, in our industry and outside of our industry. So our focus is getting to that point where we’re self-sustaining, and we see it – you know, we’ve only been at this a year. The CBD business has only launched in February with one shop, you know? And so, but we see that basically, in the calendar 2020, we should be there. We’re kind of thinking before the summer starts. That’s the way we’re looking.

But in terms of valuations, think about the – I think we all were sucked into a valuation trap. Why did everybody decide to go public a year ago, you know? And it’s, well, because it was easy money. You could get, the capital was pretty inexpensive. Everybody did that. So now, you got a lot of public companies that probably shouldn’t be.

James West: Right. And now they have to backfill the value.

Peter Horvath: Yeah. So it’s going to be interesting, isn’t it? It’s like the consolidation is going to be kind of like, as people consolidate, it’s going to be like, a few of these players, we thank you for bailing me out. Because I look at some of the players out there, you know, I was – Surterra, who, you know, a year and a half ago, wasn’t impressed with their stores, but I’m impressed with their story, which is, they are private. And they’ve got, they’re one of the three businesses that have a significant footprint in Florida. 

I think that was smart, versus, you know, us and other people were in three states. I think we’re okay, because we’re concentrated in three states, but I see people who are in 11, 12 states, because somebody told them ‘you should be in as many states as possible.’ In a real retail, you would never have an outpost store, because you can’t manage it. It’s hard to make it successful.

So you know, focusing on a few states and getting some critical mass, you know, a company like Harvest has critical mass in Arizona. You know, we have critical mass in Nevada, and we will in Florida. I think those companies are going to have a better chance of being around when the markets change. So hopefully, you know, investors, good luck. I wish I could give them advice on what to look for. Everything is cheap, but I don’t know, is it?

James West: Well, we’ll see! All right, Peter, that’s a great update. We’ll leave it there for now and come back to you soon. Thanks for joining me today.

Peter Horvath: Thank you.

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.