While cannabis is booming, old-fashioned business practices like IPOs and commodity trading apply. | Cover collections


YOU ARE IN THE CANNABIS TRADE AND YOU FIND YOURSELF WITH EXCESSIVE TRIM. Or an excess of CBD isolate – better known as shatter – a byproduct extracted from the plant and used to make everything, from topicals that can be massaged into sore muscles or added to essences or essences. candy for relaxation and pain relief. Conversely, let’s say you are in the edible manufacturing business and find that you are running low on CBD oil in sufficient quantity to meet the demand of dispensaries looking for your brownies.

How do you find yourself in the middle of this chaotic and ever-growing cannabis landscape?

Grupo Flor, based in Salinas, saw the need, and it saw the need through its own expansion – a distribution center in Los Angeles, a culture center in Pescadero, a retail store in Los Angeles, and an office in Los Angeles. Costa Mesa, plus an eye on opening 18 new stores over the next 18 months, a combination of acquiring existing stores statewide or acquiring existing licenses for stores that haven’t opened. On March 4, the company officially launched what is believed to be the cannabis industry’s first commodity trading desk to connect buyers and sellers.

Grupo Flor CEO Paul Henderson, who previously headed a private banking group at Goldman Sachs and was head of global financial services at Apple, said Grupo began trading informally last year, by taking the company’s own materials, including excess cutting, turning it into petroleum and wholesaling it to other manufacturers.

“We weren’t really focused on it and nobody was really directing it, and then we started to think about it,” he says.

“Us” is him and Chuck Drake, COO of Grupo who previously worked at Merrill Lynch Equity Capital Markets. They spoke to a trader who told them that when he worked at the Chicago Mercantile Exchange, half of his time was spent closing deals and the other half was spent on the logistics of moving physical products from location to location. the other.

“In California, it’s less about connecting buyers and sellers,” says Henderson. “It’s about how, once you’ve connected the two, how to transport the product in a compliant way on the roads. “

The shipment of cannabis or its derivatives across states is currently prohibited by federal law, so all trade facilitated by Grupo takes place within the state.

“We can connect a buyer in San Diego to a seller in Humboldt, send the product for testing, and then ship it. We take care of the cash connections and payment, ”says Henderson. “Farmers and manufacturers aren’t necessarily good at sales, so we say, ‘Do what you do best and we can be your sales arm.’ It was the genesis of it.

Since the official launch of the trading desk this year, Grupo has facilitated between $ 5 million and $ 10 million in transactions each month. Grupo takes a small margin on each transaction.

“The more the word gets out, the more interest and demand there is,” says Henderson. “We’re seeing very regular inbound requests to start working with us, and the numbers are growing rapidly. If we ripped off the bandage, we could grow it quickly, but we’re exposed if we keep the inventory. “

Grupo’s office uses proprietary software, and unlike most commodity trading desks, it is not regulated or registered with the Securities and Exchange Commission. At present, such regulation is not necessary, says Henderson, because the company does not sell futures or options.

“What we do is distribute bulk cannabis,” he says. “Once we get out of the pure physical commodity movement, I think it will go where there are options and contracts and buyers will know they have a supply, and that will require registration.”

Grupo is not the only one among local cannabis companies that envision rapid national and even international expansion.

At Salinas-based Indus Holding Co., better known as a manufacturer of edibles under the Altai and Dixie brands (among others) and as the first licensed cannabis company in Salinas, the company entered what this is called the “quiet period” – meaning they can’t speak to the press – as they prepare to file an initial public offering (IPO) on the Canadian Securities Exchange (CSE) .

Why Canada? Because it’s completely legal there.

Last October, Indus announced that it had raised $ 46 million in a second round of financing, following a first round of funding of $ 3.5 million in 2015. When Indus files its IPO, she will join companies like True Leaf Medicine International Ltd. , MedMen Enterprises and Curaleaf Holdings Inc. to make their public debut north of the border.

Indus co-founder Rob Weakley, anxious to avoid violating the code of silence around pending IPOs, says that in the future any infusion of funds will help the company grow its brand strong in California to make it a nationally recognized name.

“We’ve spent the last four years laser-focused on California and we’ve gone from four or five employees to 265 full-time,” he says. “It has been quite a journey and we are looking to continue building brands. “

And the IPO is necessary because cannabis companies still don’t have access to traditional banks and loans.

“Any other business can go to a bank and get a loan to grow their business, but cannabis is different,” Weakley said. “We can’t be a national brand if we’re only in one state, but we think brands are built in California. People buy wine from Napa, Sonoma, and Monterey County, they buy California agriculture, and I think it’s the same with cannabis.

When Curaleaf debuted at CSE last October through a process known as a reverse merger (in which a private company buys a state-owned company, making its access to capital much faster than a traditional IPO) , it did so with a market cap of $ 4.5 billion, more than double the market caps of other leading cannabis companies that went public last year in Canada, according to the website. The Motley Fool investment.

Cannabis stocks watcher Jason Spotafora, who tracks trends and money on his site marijuana.com stocks and animates the community of investors wolfofweedstreet.com, says it’s an impressive feat for a Salinas-based cannabis company to raise $ 50 million in funding.

“You can be an operator and if you spend it wisely the sky is the limit,” says Spotafora. “But what you don’t want is something akin to MedMen, where the CEO and CFO took ridiculous pay and shareholder voting rights are 0.7%. I don’t see them surviving.

The business prospectus is something every new investor should consider. And, says Spotafora, investors shouldn’t worry about rushing.

“I will not invest in a company positioned in California at this time because the black market is still very involved,” he says. “Inevitably the price will go down, but if you’re a public company, the costs are just a lot higher.

“If the United States becomes legal, once that happens, it’s all of these businesses that are going to be watered down because there will be a million of them,” he says. “There are still a lot of risks for these companies, and timing is of the essence. “

His recommendation to investors: “Focus on those who build brands. These are the ones to watch out for. “

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