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Investors know the cannabis market is back and are looking for real value and opportunity in the rebounding space. And while many companies are called…few are chosen.
1933 Industries (TGIF) (
CSE:TGIF,
OTCQX: TGIFF,
Forum) is a Nevada-based, vertically integrated, brand-focused cannabis company. TGIF owns leading cannabis brands, as well as licensed cannabis cultivation, extraction, processing, and manufacturing assets. 1933’s award-winning proprietary portfolio of brands include A-M-A cannabis flower & concentrates and the Canna Hemp brand of CBD wellness products.
In this exclusive video podcast, Stockhouse Media’s Dave Jackson as joined by 1933 Industries’ CEO, Paul Rosen, to talk about the company’s growth metrics, their recent oversubscribed financing, and impressive 2021 milestone sales.
TRANSCRIPT BELOW:
SH: Can you tell us a bit about yourself, your role with the company, and the 1933 story?
PR: I'll get the part about myself out of the way real quickly, cause no one's here to hear about me. I'm a Canadian executive attorney by training, but I've been a sort of an entrepreneur for most of my adult career life. I've been super active as some of your audience may know in the cannabis industry. Since about 2012, I was a co-founder and President and CEO of pharma can capital corporate rebranded the Cronos group. I was a board member by anti-ice capital. I was the founder of federal of the corporation. Now do we businesses red, white, and bloom. So I've been super active as an entrepreneur, a legend thought leader and an investor and consultant I'll say in the cannabis industry, I met 1933, kind of knew of them for quite a while, tracking them. They have roots in Canada where I'm from, where I'm at today.
But my first real touch point was entering into an investment into the company. Gosh, just a little bit about two years ago in in 2019 in the spring of 2019, and I was a non-executive. I liked the position of the company in Nevada. I liked his assets and I felt strongly that it had a strong base in which to grow from. And I became the CEO approximately about nine months ago. At that time, the company had a in some part due to COVID, but also due to some financial challenges. The board had made a decision to move on from previous management and asked me whether I would come in as CEO on an interim basis. I wasn't a meaningful shareholder, and I guess I had a decent amount of bonafides. So I agreed to the position and I'm actually happy.
I'm really pleased with sort of the progress that I have been able to make alongside my incredibly talented and hardworking colleagues to really deliver on the expectations the investment community has around this company. So that's sort of a little bit about me in 1933, and you really touched upon 1933, his highlights were a cultivator and a processor and a wholesaler. We are not currently vertically integrated. We don't own our own dispensary, but the wholesale market is very healthy in Nevada. It's one of the limited license States, meaning that the cannabis control board, which is in charge of licensing, takes a very sort of discretionary non at an administrative view towards granting new licenses. And they're very, very fastidious about making sure that the market is not chronically oversupplied. So they're sort of protecting if you will, the incumbents of which we are one of them. So there's some favorable macroeconomic dynamics about being a wholesaler in Nevada.
Yes, the company, I guess it's a nod for those of you that don't know 1933 was the year that the Volstead act passed. The waltz act is sometimes known as the prohibition act. It actually, I think passed earlier. But in any event, it's an homage to prohibition and was as many people that have been in the cannabis industry for years. Now, we often made that analogy that this is like the end of prohibition. And I would say that thesis is accurate, except it's actually quite a bit bigger than that because alcoholism one, one note chorus, if you will want one trick pony, whereas cannabis is capable of really, if you will be disrupting multiple industries, including CPG nutraceutical wellness, and of course pharmaceutical. And so I think we've actually seen that happen. Those of us that had been in the industry for a long time is the walls of prohibition are coming crumbling globally right now, nationally, regionally, and globally. And it's actually doing something kind of cool. It's dragging other asset classes that were controversial, like psychedelics into that same sort of re-examination. So I think this is ultimately good for society and good for the private enterprise companies that are well enough run to take advantage of this incredible call. It’s generational opportunity.
SH: Can you update our investor audience and your 1933 shareholders on any new company developments?
PR: Great. And I'm speaking to the investors as much as any other constituency because this is a capital-intensive industry and our investors and those that have the confidence. And I'm speaking about the overall industry, this doesn't work without investor appetite for the asset class. And I think it's the optimism around this as a class is more than justified. So the things that excite me as one of the largest investors in 1933, and I'm that CEO that is highly invested in my own in the own company that I run, I have participated in three of our last private placements. And I think it's fair to say that I have literally millions of dollars invested in this company of my own capital. And I'm here to get a return on my capital. Then, when I got involved, Dave, I think the first critical thing is that 1933, like a lot of other companies, our industry needed to reform its balance sheet.
Let's just get down to fundamental economics. And I've said this on other public forums, but it bears repetition because we continue to improve. There was a number of I think improvements that the company was capable of achieving, but unless the balance sheet was tied up, I think those would have been a challenge. A healthy balance sheet gives you a lot of runway to improve all the things that need to be improved. Let's say that all businesses are in a state of continuous improvement, but a balance sheet is critical. So when I became CEO, our debt-to-equity ratio is not what I thought to be advantageous. We had roughly about $2 million us cash on hand, and we had a convertible debenture, which comes due at the end of this coming September with a face value of the time at about 10 and a half million us dollars and through a number of the debt consolidation, maneuvers converting debt, and also raising capital today, we find ourselves with about four and a half million dollars us in the bank and a total debt load of a closer to $3 million.
So we've gone from being, if you will lever post four to one really actually more than four to one, closer to five to one debt to equity. Now we actually have our, our cash on hand covering our debt load. So that's huge. And the most, in my opinion, that's huge. And the most significant events are really in the last 30 days we completed a bought deal. Private placement, counter accord did a whole round. We were bought deal at three and a half million dollars happily. There was an overlap of 5 million. We filled up the whole over allotment. So that's great that just to give you the terms was an 11-cent unit with a full warrant striking at 16 cents for a period of two years. That's right where the stock is today. So I think that stock was trading above it, sometimes it regresses to the mean, and we had a wave of debt consolidations convertible to venture consolidations around the time of that financing.
So feeling a lot better about the balance sheet and with that comes a lot of optimism about what we're capable of. Ultimately, we're in the business of manufacturing products that produce a delighted experience for our consumer and that we're able to sell to the last gram or last drop of isolate or distillate at proper margins. And our KPIs going forward are to improve our output and the quality of our output. Our assets, Dave consists primarily of about a 66,000 square foot indoor premium cultivation facility. We're in the midst of some upgrades, working on improved lighting, working on some manual irrigation, and likely going to anticipate bringing another 130 lights online into that room, which will likely max out capacity. And we operate about a 13,000 square foot extraction lab where we create most of the well-known form and both are working, both are really actually highly optimized compared to where they were saying about a year ago.
They really have come online. Our quality on our quantity has gone up seismically since then, and now we're really starting to work at the margins that improve strategies to get a higher yield, a higher quality yield and improved outreach to our community. We currently sell to about 75% of the dispensaries in Nevada. And we're looking to get to a hundred percent coverage if possible. And we're excited the fact that there's going to be some additional dispensaries licensed in Nevada coming onto market soon. And quite frankly, we're excited about the end of, or hopefully the knock would end of COVID because Las Vegas, as a tourist dependent economy largely will get above average lift when tourism resumed at our normal velocity.
SH: How has the pandemic shaped the direction that you’re aiming to take 1933 and its direct-to-consumer approach?
PR: So, the good segue into, into the pandemic, what this pandemic did for a lot of companies in our industry in 1933, it would be emblematic of this is that brought a certain urgency to a more focused approach to building the company. And that meaning that when you have an unexpected, almost existential shock on the demand side, you really need to get your house in order. So whoever was operating a business in Nevada, they would have had a model that would have suggested what is the revenue going to be a year ago, March a year ago, April and those models were sophisticated, and they were largely pre accurately predictive. But then you had this sort of a black Swan event of COVID and resulted in all of us having an unexpected compression in revenue. What it ought to have done is forced all companies to go through a rigorous audit of their practices to very carefully, where they could do risk the, their own operation. I cannot control for the pandemic, but there are other things I can control of. So I think even though I don't think there's an upside to the band demo, obviously a public health disaster loss of life, loss of economic stability. So no way was this a good thing was quite the opposite, but it did at least.
Amongst a lot of operators. A newfound sense of discipline that I think was long overdue. And certainly in the case of 1933 has served the company. I'm not sure, but for that sort of existential threat that we would have brought the same urgency to some of the reformation that we have since accomplished. And while I would have preferred to have done it without the costs imposed by COVID, the fact is that was the sort of force multiplier that forced us to really say, we got to deal with this right here right now. Of course this thing will resolve, maybe it's we didn't know what back then, was it a year? It wasn't going to be two or three years, but the key was to make sure that when we got to the other side of it, we had a healthy asset that was in a to exploit what would be on the other side. And I'm glad to say that we've largely accomplished that.
SH: As a Nevada-based company, how is the company overcoming the lack of tourism in the state…primarily Las Vegas?
PR: I think we've all been all of us being the collective stakeholders that are participating in the Nevada and the Las Vegas cannabis economy is the one thing that we've learned is that our domestic market was much more resilient and durable and substantial than maybe we had thought. So the tourism is the icing on top of an already pretty decent cake, if you will. And it's important. And when it resumed, it will likely favor all of the stakeholders in the industry. But we really learned that we have a very meaningful total addressable domestic market, and that there's still a relatively limited availability of supply. We only have, you know less than a hundred dispensaries for all of Nevada. We only have a limited amount of cultivation and, and processing licenses compared to like large States like Colorado, which adjusted for population adjusted for tourism, have a smaller population have way more participants in the economy.
So there is something because of the sort of slightly more controlled, limited license, it meant that the domestic market was, you know, not over that the domestic Mark was sufficient to help these companies navigate the Shoals around COVID. And there was still enough demand for all of us to, you know, to get our piece. And then we just got better at our businesses and I'm not referring to like the dispensary's raising their game once they were able to open. So good news, we have a strong marker that it's independent upon tourism, better news. When tourism comes back, it's going to likely result in a meaningful lift to the overall industry. And I suspect that's kind of happening right now, meaning it's not like, okay, one day there's no tourists. And the next day there are, it's a steady increase in social conditions or public health conditions to allow tourism to prosper.
And we're, we're getting busier this month than it was last month. And America's done a very good job on their vaccinations. So I really have for the first time, I think a strong sense of optimism that Vegas is going to really start to be like, not only looking like the biggest used to be about almost like a steroid version because of the pent-up demand to go out and have some fun and let loose and enjoy. I think there's a real bright road ahead for the Nevada cannabis economy we've was stood there, the challenges of COVID. And I would say that a lot of us have our businesses are in a better position than they were on day one of COVID. And now with the return of normalcy, we should really expect some upside.
SH: In recent news, you just announced the closing of oversubscribed $5 million dollars in private placements. Can you walk us through the deal?
PR: Sure. So I want to give a little bit of credit to Canaccord because they were really quite valuable in this. So the, you know, I started you know, we were not, my view was our balance sheet was okay. We were really watching our money in money out carefully, and I felt that we had runaway even with what we had in our bank prior to going upon this raise. But I will say that there was a window that we were able to jump through that I'm pretty excited and pleased about a few weeks ago, I think about three or three, three weeks ago, we had one of those really big movements up in the industry. I think there was a continued enthusiasm. This is a secular trend. That's not going to go away, but it was, there was a lot of momentum not only our stock, but quite a few stocks really were just in a buoyant mood that week.
And it resulted in the availability of a bought deal, which probably wouldn't have been on the table two weeks earlier. And perhaps wouldn't have been on the table two weeks, hence, and we were able to, you know, quickly agree upon terms at the time I felt terms were very accretive to our existing shareholders, that it was relatively speaking good money to be had that we did not have to make a lot of time and expense raising. And I was thrilled to see that it got over a lot of that was really a key thing for us. So it was relatively speaking, a painless capital raise and it was swift, and we raised the full amount. So it was to me an inflection point for this company because commensurate just as I indicated with that raise was a wave of debt consolidation. So on the other side of it, not only did we meaningfully Pat our balance sheet with cash, which we will hoard carefully, like it's, you know, grand mom’s life savings, but we also experienced a seismic increase in the velocity of debt conversions.
And then very quickly we went from dead here at cash on here to a total reverse. So I think it's a significant inflection point that really does give this company enough runway to really get creative now in clever and look at all sorts of opportunities that would have been more remote, but for the improvements in our balance sheets. So I think it was outstanding. I want to tell everybody that's in the audience today that I voted with my wallet. I also participated in the private placement. So I am a CEO that has just, as I indicated, a lot of skin in the game, I thought it was a well-priced security. It's not, people could have said, don't you own enough of the company. I would have said, that's not the right way to measure it. The measure is I have some capital I want to put in the market. What do I think of this opportunity? I think it has real upside. That's what I believe. I hope I'm not wrong, but a certainly it's a belief that I backed up with my wallet and my hard-earned cash while it's great.
It's the excitement that allows that to happen is justifiable. In my opinion, I think we all look at the U S cannabis industry as this like incredibly high growth opportunity and not for every company and everywhere, but at a macro level. And we feel that we're getting closer to a dramatic series of legislative reforms, which I think are going to completely rekindle. What is already a fairly excited market. And largely, I will say we're still BC before con continuity between federal and state. And even though valuations are hardly compressed in some of our bigger there's room for them to run. And I didn't think the story for big returns is in small cap cannabis right now, meaning that large cap cannabis smack out small cap has been outperforming large cap over the last couple of months. I think that's because once you get through all your big names, I've got money and I'm just going to name big us cannabis companies.
I'm not recommending them or saying one better than the other one. I'm sure leaving off, but I've got money as I might get myself in clearly in GTI, in Cresco in Jewish cheaper apps and terrorists, and I'm just getting going in the, in the Cleaver spot, whatever it may be. But then you start to say, okay, I really love this asset class. I want to look at some micro caps, which may have more percentage returns and we would fit into those smaller caps. And I think that we've positioned this company to meaningfully attract investor attention you know, 5 million hours’ worth of capital voted on 1932, his future. It doesn't mean that they were right, but I got to believe that there is some methodology to that analysis, and it gives me it doesn't make me think that the job has done at this gives me confidence that we're in. Right.
SH: Despite the challenges the industry has faced, you’ve reached some impressive milestone sales for the Month of January. Can you elaborate on them, Paul?
PR: Yeah. January was a for us. I think we reported that we had taken new orders of 1.4 million Canadian. I'm sort of switch currencies there but try to stick in Canadian now. So that's not the record month ever. It was for AMA, which is our cultivation. We used to get more contribution revenue from our hemp division, but really what we've now noticed is that we've had, especially in our core form factors, we've had, I think that was our fourth or fifth month of sales growth in a row. And I don't think that not to make a guarantee, but my belief and my forecast is that we will continue largely to see growth most months for a while yet. I think we have, in other words additional production capacity that hasn't yet fully turned into fully realized revenue. So January was a good indication.
It pushed us right up to the envelope of cashflow break. Even I'll say more or less, we still look at our numbers on a near semi-weekly basis to see really what is our breakeven, but we're certainly in the right time zone for sure the right Dell code there. And it's a step. I think that it means that we're continuing to expand our, our capacity and continue to expand our reach. But I don't think in any sense we're satisfied, and we think that's anywhere near like the limit of what we're capable of doing. So I look forward to continuing to work with our sales team, our production team, and our cultivation team to continue to grow our top line revenue.
SH: ‘Value and opportunity’ are industry catchphrases that really get the attention of cannabis sector investors? What can you tell them that makes your company so intriguing and attractive?
PR: I mean like every CEO probably out there, I think we're a bit undervalued. And so I say that we're, I don't have any like cutting soon. You better get in now before this next big announcement, nothing like that. I think that obviously I've got a pretty good network in the cannabis industry. And I spend half my time in 1973, looking down at the ground that we're running on and about the other half looking up at the sky as to where there could be additional opportunity. And I think that we are positioned as we get stronger as an operating company, as we got stronger with our balance sheet, it just reopens up a whole myriad of opportunities that might be a creative to shareholders. Those could include expanding our domestic production capacity. We own a, in addition to the buildings that we a tenant, we own a 12,000 foot and that we're not currently operational.
And so that's a possibility of expansion. There's also the possibility of working, although I don't have anything imminent. I do look at other opportunities at other States to maybe engage in M&A activity. And as our balance sheet gets better, that becomes more foreseeable. I do also look at the ability to theoretically vertically integrate if appropriate in Nevada. So I think that we have a healthy core set of assets that in and of itself should anticipate if we manage our, our company well growth. And with that growth should attract more investor attention. But I do think that's just on a sort of a linear right in front of us path. And then beyond that are other paths that would synergize or multiplied the benefit of that, not to replace it, but I could, you know, I certainly, maybe I got spoiled having participated in some larger entities in my cannabis career.
I would, if we are just a great, you know, best in class Nevada based wholesaler for our career, I think we can have a great company that investors would be happy to be a shareholder in, but I do think that there will be additional opportunities that we'll be able to at least assess pursuit where appropriate. So I think there's a lot of, you know, I don't think that I don't believe anyone's that special. I think we're all just ultimately coming down to how well we run our companies. We have great product. I can say that confidently. We have a great team motivated. I bring a lot of discipline and executive leadership and, and both macro and micro knowledge of the industry. And I think gives us a good company and to make it from good to great, to overwhelmingly compelling is going to require execution, whether it's execution on just the path in front of us or execution on all these other opportunities that could take us into directions that are not yet on the table.
SH: You and 1933’s leadership team set out to guide the strategic direction of the company into a new phase of development. Can you expand on what that entails looking out to the rest of 2021 and beyond?
PR: Yeah, our in terms of like specifically right now, just to give investors some visibility as to what is our short-term our short term is to continually to upgrade the quality of the current assets that we are managing. And that means specifically through all of our verticals AMA flower, AMA concentrate in Canahan rigorously looking for extra value, whether it's on the cost or on the revenue side. So specifically we are going to, we are in the process of ink, ultimately increasing our flower capacity. We provide a lot of our own biomass to our concentrate. So as we increase our flower capacity, we also increase our biomass available for concentrates. So with the money that we just raised, Dave in the here and now, a little bit of that is going to go towards continuous improvement because ultimately you got to analogize companies like 1933 to a restaurant, and you're going to have beautiful tables and pleasant waitstaff, but you really got to make good food.
None of the day, we're a product company and you can't shortcut on the product. So other things that would become a, that are of interest to me are expanding our product capacity, whether that's more of our current form factors or adding form factors, I get, I reverted to revert to the fact that we own a building that's fully built. That just needs a little bit of retrofitting depending on what we're going to do with it. And that largely has all sorts of options. It could be another cultivation facility; it could become a food and a food or beverage facility. And it's today. It's not the most important thing and my priority to get that other building figured out, but it's right behind continually to improve the existing facility with some modest. But I think instrumental capital upgrades quickly after that, we'll look to our other building to say, what do we do with this?
Do we sell it for cash? I hope not, but it's not a bad outcome if that was the best outcome, is there a form factor and also that we have active discussions with potential strategies around using that building. So that would be also something that I think is part of our development. And then after that, everything else I, while I have a whole notebook full of ideas, I feel like they're all still in that developmental stage. So right now, again, just to of keep repeating, I really want to focus on what I have control over less counterparty risk, maximizing the quality and the quantity of our production capacity in Nevada, where we see favorable, favorable market conditions lasting for years. And when I feel that we've got, we've gone, if you will squeezed as much to sort of that lemon as can be squeezed, including adding another lemon, if necessary, then I think, you know, not to say that we have to do this consecutively, we must finish one before we started the other, but that really is where my focus is right now is the ground game on what our core asset is in Nevada.
SH: And finally, Paul, if there’s anything I’ve overlooked…
PR: Well, wow. Usually I'm never speechless, but I'll just say, you know that these businesses require a tremendous amount of management and a tremendous amount of kind of, sort of like continuous improvement. And I think that what we have at 1933 now is a really highly motivated professional team, largely aligned with our shareholders. And we have a CEO who is one of the most aligned with the shoulders of a company, public CEOs out there. And just in terms of how much of equity I have in the company that I bought it wasn't forwarded to me as, you know, cheap founder's shares. I I'm have a meaningful amount of capital and a meaningful amount of experience. And I think that just the best way to measure us as the progress that has been made in the relatively short period of time. And I feel that we're just getting, going here, meaning that the company feels the most to me, stable. It has in quite a while. I feel that I really have a good, clear understanding about what is achievable for us, which is a great deal. And do believe that the return of tourism, Nevada is going to have a dramatic accelerating effect on our overall industry, the Nevada industry. I do think 1933 in a way that it wasn't last year was really positioned to get a lift up. When that happens.
For more information, visit
www.1933industries.com
FULL DISCLOSURE: This is a paid article produced by Stockhouse Publishing.