Invictus MD Strategies (
CSE:C.IMH,
Stock Forum) is one of the marijuana sector's deep secrets. The company has watched a few bodies of over-promoters and over-promisers and under-achievers float by in the last few months as it has quietly put together one of the more grown up plays in the business.
Led by CEO Dan Kriznic, who takes accounting to the level of a martial art, Invictus has acquired six companies - so far - for not crazy amounts of money, while canceling a ton of shares, and marching quickly to a place that demands respect from smart investors.
We talked to Kriznic about his plans and how legitimacy is becoming a marketable asset in the cannabis space, and the junior markets in general.
Q: A lot of people would have been very happy to spend a few decades in your former position at Deloitte as well as your executive position at PrimaCorp. Yet you stepped back from an important role at a respected multinational, and opted to go solo with your own venture. What was the motivation behind that switch, and how are you feeling about that move in the early days of Invictus? Everything you wanted and more?
I left Deloitte back in 2009 to work for one of my clients who had just recently done a fairly large acquisition and needed my support to build the company. The most difficult part about leaving Deloitte was moving on from the numerous client relationships I had built during the 10 years that I was there. I’ve always had a sense of entrepreneurship in me since I was young and wanted to dive deeper into industry so I could utilize street smarts combined with my CA education. For over 6 years I was an integral part of building Canada’s largest for profit education company. The motivation to move on and incubate Invictus was primarily drawn from watching various footage with regards to medicinal cannabis and how it is helping the young and old. I am not a 420 recreational type of person. I saw this as a revolution where I could utilize my previous business experience and really make a difference. I never look back and truly believe the decision you make at the time you make it is always the right decision. Sure hindsight might suggest something different but when you’re running a fast growing company like Invictus there isn’t any time to look back. I more excited and motivated than ever before.
Q: You raised a small amount of cash as part of going public in December 2014, around $413k. Later you raised an additional $770k and combined turned that into six companies organically and by way of acquisition and still have $175k in change left over. Why are people so keen to sign over a large piece of their business to Invictus?
We raised approximately $413k when we went public at the end of December 2014 and an additional $770k a few months after. With those proceeds we were able to purchase and start up 6 companies, 2 of which are already revenue producing. Those companies include:
1. Vitaleaf – our patient education and management company dedicated to providing information to patients, producers, prescribers, policy makers and the general public. The full website will launch in Spring of 2015
2. Future Harvest – A manufacturer of hydroponic equipment as well as lawn and garden related products. They have three product lines including Nutradip which manufacturers metering and monitoring products, Plantlife Products which includes various nutrients for growing and Sunblaster which has introduced a number of lighting products to the hydroponic and in-door growing industry.
3. Smokazon – An American based multinational corporation engaged in worldwide marketing and selling of aromatherapy related gear and accessories.
4. The Edison Vape Co. – a unique new type of vaporizer technology that is currently in the proto type phase
5. Cannabis Health Sciences – Owns and operates the Cannabis Health Journal. Initially started back in 2002 with 21 issues. We are launching a comeback in Fall of 2015 with some amazing interviews and write ups.
6. Greener Pastures MD – This is our grow management and production vertical. We are seeking acquisitions in this vertical but do not currently have a license.
We are extremely efficient with our capital. I guess this is part of my roots as a Chartered Accountant. A day doesn’t go by that I don’t focus on the cash flow of the business. I’ve always considered myself very creative in the boardroom in terms of structuring deals. The secret is to understand the motivation of both parties and find a win-win solution. We pride ourselves on building a real cannabis company that will be around for many years. Business owners see this and want to be a part of a bigger movement. All acquisitions include a component of cash and shares in Invictus based on performance. That gives each company incentive to help and grow every vertical under the Invictus umbrella.
Q: I imagine a lot of the companies you’ve talked to maybe started out as mom and pop shops, found a little success, developed a nice niche, made some good money... What happens to those ground floor companies when someone like you walks in, takes inventory, and starts hitting cleanup?
We are very much operators at heart. We work with each vertical to understand their business before starting to implement improvements. I am a big believer in the saying “what you can’t measure you can’t manage”. We build Key Performance Indicators for each vertical and manage them in great detail. Every two weeks we have a full day management meeting with all the verticals to ensure we are on track with our growth plan. This is a time where the management of other verticals are welcome to join in any meeting to learn more about the company and provide their knowledge and expertise. A prime example is Smokazon is now working with one of our business advisors Dario Meli to provide web content through his company Quietly. We are already starting to see improvements in traffic as a result of this relationship.
Q: A lot of the moves you’ve made to date have been in acquiring what might be called marijuana services companies. Is that where you see the strongest future in the cannabis sector?
Invictus will be operating within all areas of the cannabis sector as we continue to raise and deploy capital. Our mission of increasing shareholder value by combining organic growth with a disciplined acquisition philosophy holds true within the services businesses as well as the production business. We have focused our acquisitions within the service areas at the moment more to manage regulatory risk than anything. There have been too many company’s in Canada that went public on an application to Health Canada and continue to be at their mercy. We wanted to be different. We wanted to protect the capital invested by our shareholders until such a time that we feel comfortable with the regulations.
Q: As your model starts to fill out, a company that joins your group will be able to take advantage of each of your verticals – coverage in Cannabis Health, products from Edison Vape, being distributed through Future Harvest, etc., not to mention being able to access the collective knowledge and experience base from your team. What’s missing from that model? If you could wave a magic wand, what sort of business would you like to add to that roster?
You are exactly correct. Invictus is a conduit to many of the verticals in the space. We give people access to resources they need and the connections they crave. To fill out our model we are seeking production opportunities as well as research and development opportunities. We want to continue building on the cash accretive assets and eventually start using those funds to support verticals in further research and development. We are currently looking at a few opportunities in Israel, Czech Republic and the US.
Q: When you started acquiring businesses, you kept the news very much to yourself. In fact, even now, yours is one of the less promotional companies in this space, yet I keep hearing your name mumbled by very serious people as an interesting play. Is that how you wanted things to roll out? Earn the respect and the investors will follow?
Yes. You don’t see too many companies going public 2 days before Christmas. This was all done by design. We wanted to acquire more assets before getting the word out to the general public. Keeping the market cap in line with our intrinsic value is important to us. I want investors to feel they have made the right decision based on economics rather than hype. We are in this for the long term.
Q: As an investor, I’m looking out for companies that are likely to rise in share price, but a lot of junior companies dilute to grow. You’ve been very focused on not diluting, and even cancelling shares out to further tighten the float. Is it likely we’ll see more of that in the future, or even a shift towards a dividend down the road?
Using stock as currency for acquisitions is definitely part of our acquisition philosophy. When we see an opportunity that makes economic sense we consider the impact of dilution to our existing shareholders. Typically we mitigate the negative impact of dilution by adding in significant performance metrics for the verticals including metrics for the management team at Invictus. Our goal is to continue incubating and consolidating private companies in the space and eventually exit with the verticals that make sense by way of sale, merger or even taking them public. We have only been public for 4 months and have already received offers. A dividend model down the road is definitely something we have considered pending cash flow from operations as well as proceeds on future exits. We want to give back to the shareholders who are currently supporting us and continue to do so.
Q: You’ve clearly evaluated a lot of potential acquisitions in the last several months. Are there any cannabis-related companies out there that, in a perfect world, you’d love to have gotten a piece of if the planets had aligned? Or, for that matter, any company that you just truly respect in how they’re doing business?
Everything happens for a reason. You can’t consummate all the deals that come across your desk nor would you want to. A recent example was a deal when I was in Tel Aviv which we were incubating for about 2 months. We were a couple of days from getting across the finish line when the deal terms shifted on us. It would have been a great international play for us however the terms were not right for Invictus and our shareholders so we decided to pass.
In terms of a company that I truly respect….At this stage I would say GW Pharma based on what they are doing for the industry as well as the capital they have managed to raise to date. There is a lot of noise in the market with minimal operations to back it. More so I respect the industry and the efforts some of the genuine operators have put into it.
Q: A vertical integrator draws strength from diversity, but the risk is often that the pieces can’t work together. How is your team building out to ensure that’s not an issue for Invictus?
We have built a very diverse team in a short period of time including industry operators, government officials, doctors, accountants, lawyers and marketers both operational and public markets. Each of the team members have something to add. Our stock of knowledge, habits, social and personality attributes is strong. As a combined force we are very strategic and creative and have the ability to produce economic value to our shareholders.