California Cannabis Roundtable: Positioning for Big Changes Ahead

More than 20 years after voter approval that permitted an unregulated medical cannabis market to develop, already the world’s largest, California is on the cusp of simultaneously regulating the medical cannabis market as well as implementing adult-use in early January. Draft regulations are expected later this month, and companies are preparing for big changes ahead. To help our readers understand some of those changes and how it will impact companies in the cannabis industry, we hosted roundtable on September 7th.

The participants in the roundtable included the CEOs of three public companies headquartered in California with a combined cannabis-related revenue generation for the quarter ending 6/30/17 in excess of $13mm, including ancillary services and products providers Kush Bottles (OTCQB: KSHB) CEO Nick Kovacevich and Solis Tek (OTCQB: SLTK) CEO Dennis Forchic, which are both New Cannabis Ventures clients, and direct cannabis company Terra Tech (OTCQX: TRTC) CEO Derek Peterson. A complete audio recording of the  roundtable is below, with a summary as well.

Key Takeaways

  • Each of the companies is moving aggressively to expand in front of a more regulated market
  • A tighter regulatory environment is favorable, as it will level the playing field and raise barriers to entry for new potential competitors
  • California is likely to become a regulatory model for other states

Summary

Kush Bottles CEO Nick Kovacevich described the company’s packaging and vaporizer hardware business, which was recently acquired (CMP Wellness). The company has been hiring ahead of the changes, employing now 5 district sales managers in the state, and it has begun to focus on cultivators, extending beyond  its historical relationships with dispensaries. He expects the new regulations will require child-resistant packaging that isn’t currently required in the market, though it’s not yet clear exactly what the rules will be. He also said that if advertising rules are highly restrictive, packaging may become a more valuable option to cannabis businesses. Because he sees developing new relationships as so important, Kovacevich has focused on building the company’s salesforce and also expanding its product offering and inventory positioning.

Solis Tek CEO Dennis Forchic discussed the company’s lighting business and how it is now launching its Zelda Horticulture nutrients division. He believes that the deep relationships the company has with its lighting customers and hydroponics stores will allow the company to quickly ramp its nutrients products, and he sees likely water usage regulations boding well for this line as well. Forchic believes that the strict regulations will pave the way for other states to follow, and the company is positioning itself to take advantage of the expansion of legalization in the East. He is hopeful that California’s rules will influence other state’s, allowing the company’s products to not have to be customized with respect to labeling. Forchic also believes more uniformity across states could allow some larger companies to enter the space as consolidators. Additionally, he sees an opportunity in his lighting business as individuals are allowed to grow with up to six lights.

Terra Tech CEO Derek Peterson reviewed the company’s traditional agriculture business Edible Garden as well its vertically-integrated cannabis operations in Nevada and California, with the retail brand Blum and wholesale brand IVXX. He suggests that a regulated California will allow the company to scale better given the size of the market. He also sees the gray market losing its competitive advantage, as companies with the ability to comply will gain market share and consolidate. Peterson believes that the changes ahead will lead to more consistent products in the market. The company is expanding its retail and cultivation capabilities in advance of the changes and is focused on building its brands.

Each of the participants in this roundtable will be presenting their companies at the New West Summit in Oakland (10/13-14) as part of the Exclusive Public Companies Symposium. New Cannabis Ventures readers can save 50% on the admission price.

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Exclusive article by Alan Brochstein, CFA

ab-byline-ncvBased in Houston, Alan leverages his experience as founder of online communities 420 Investor, the first and still largest due diligence platform focused on the publicly-traded stocks in the cannabis industry. With his extensive network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Before shifting his focus to the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as an independent research analyst following over two decades in research and portfolio management. A prolific writer, with over 650 articles published since 2007 at Seeking Alpha, where he has 70,000 followers, Alan is a frequent speaker at industry conferences and a frequent source to the media, including the NY Times, the Wall Street Journal, Fox Business, and Bloomberg TV.

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