New Age Farm (CSE:NF, Forum) is not a company that has been on the tip of every investor’s tongue over the last year, but that may have been a good thing. While the high flyers (no pun intended) of the medical marijuana business have been beaten up on the charts and spent countless hours dealing with bureaucratic issues, New Age took a broader viewpoint and spotted an untapped niche.
Instead of playing Scarface, they explored the potential of being a landlord to companies looking to grow high value crops – both marijuana and microgreens, and anything else that might need a piece of greenhouse, some high powered lights, and a controlled environment in which to grow.
New Age debuted on the markets in November 2014 and with an operating partner in hand, like almost every other player in the game up north, but has suffered the same Health Canada bottleneck everyone else has in having to wait for the bureaucrats to allow it to do business.
So, unlike many of those competitors, New Age opted to deke. Instead of sitting on its haunches, shifting their business to ‘care and maintenance’, the company took flight down south and set up what may be a far more profitable, less restrictive enterprise, while retooling their local greenhouse to be more adaptable to market needs.
We talked to President and CEO Carman Parente about his plans for the company, and how a couple of dudes wanting to grow veggies in a greenhouse in Langley transitioned into what could be a multi-million-dollar agricultural management company spanning two countries and several industries.
Q: Is it safe to say New Age came up the hard way?
A: Coming up the hard way is putting it mildly--seven years of executing your business plan only to be confronted by uncooperative weather, having greenhouses full of 250,000 poinsettias and having a car ram into your power pole (on the coldest day of the year) and having your entire inventory frozen days before going to market. Starting to excavate your facility to build new warehousing / cold / dry storage buildings, only to have your general contractor vanish in the night leaving untold invoices unpaid and then going through years of court battles to settle with creditors. After seven years and over $2 million trying to find that sweet spot, we refocused once again and now want to be in land banking. We want to be strictly a landlord.
Q: Obviously when an industry is in turmoil, being able to pivot is a strength and your company has certainly done so. I’ve heard from several marijuana applicants that they can make around half the revenue out of microgreens as they can in marijuana, which is still a great revenue stream, but with far less of the hassle. Is it that easy, or does having access to a group like yours, with management who understand the perils of that space, make more sense?
A: The biggest obstacle to anyone entering this particular market is adequate capitalization. The start up costs are enormous but if one has the expertise and the network, the industry could be extremely lucrative
Q: There have been a few public companies making a move to the US of late, either as consultants or landlords – do you think that will hurt your MMPR application at all to be focused there and, perhaps more importantly, does it even matter if it does?
A: It doesn't really matter to us--the Canadian market is completely saturated now with capacity far out weighing demand BUT if and when the rules / regulations governing the derivatives start to change, that's the market we want to get really involved with (the oils, balms, sprays, etc.)
In the mean time we will look to raising capital for the Canadian operations to start design / build of a warehousing, cold / dry storage, processing facility, to at least get into cash flow waiting for the changes to happen.
Q: You own a five and a half acre greenhouse facility in Langley BC. If a new Canadian government emerges and opens the way for recreational marijuana use, what do you see as the revenue potential in farming out space on that plot, and how quickly can you turn it to ‘full blast’?
A: As per my comments on the prior question, I believe the real market will be in the derivative products and for us to take complete advantage of that market would require six to twelve months for complete turnaround.
Q: My understanding of your US foray is you’re planning a complete turnkey operation for Washington State growers. What would that look like in the real world? Lights, power, processing, distribution? Someone to identify problems before they become big?
A: All the above. A licensed tenant walks into the completed facility, turns on the lights and can have access to as much assistance as he or she requires.
We have aligned ourselves with legal counsel, expert growers, material suppliers, marketing experts, packaging, labelling, etc--the more services they require from us, the more the lease rates.
Q: So you’re a landlord providing a multitude of services for a specified target market which warrants premium lease rates – would that be an accurate description?
A: That's exactly where we want to be--we provide a complete turnkey facility and for that we expect to be appropriately compensated.
Q: Let’s talk through the financials of your US facility. You have how many clients good to go right now? And what do they look like on the bottom line for you?
A: At the moment we have two Tier Three tenants signed and depending on their level of required services from us, we are looking at a starting lease rate of approx $100,000 per month per tenant.
Q: And how many clients would you estimate you can ‘farm out’ your facility to before you need to expand?
A: On the current 3 acres in Sumas, we could accommodate six tenants before we start to look for further land acquisitions.
Q: Realistically, how hard do you think it will be to find that number of licensees? There are a lot of licenses in Washington State with no capital to get started with, am I right?
A: There were approximately 180 licences issued in Washington State and the vast majority of them lack the financial means to get the facilities up and running and realistically, we would only look at up to five tenants for the first three to five years because of the initial upfront costs--we want to get into cash flow ASAP and self finance future growth.
Q: How much money do you need to raise to finish the facility, and will investors see stock diluted when that time comes?
A: Each indoor facility (Tier 3 requirement has a $2.5 Mil USD cost). We would prefer to use debt financing over equity.
Q: I’ve yet to hear of a company in this space talk of yield outside of how much product it might be growing, but you’ve been talking about yield in financial terms. Are dividend payments a reality inside the first three years of operation?
A: Our goal is to get the facility completely built out and debt free and if the market holds up to current trends, we would definitely look at dividend distribution.
Q: Key to attracting investors in the junior markets is removing risk. Where would you say the risk lies in your opportunity? What could prevent you from executing the plan you’ve started on?
A: There will always be risk!
At the moment the exchange rate is getting pretty scary--we raise capital in Canada and invest in the US and right now we are looking at a 30% + premium.
We want to get our tenants to market ASAP and establish their brand before the market gets too over crowded
Q: You’ve certainly had no problem executing to date. After a few years spent getting an education on ‘the lay of the land’, is this where it gets interesting?
A: This is definitely where it starts. Our US site is starting with municipal permitting for land fill and security fencing as well as building design. We are bombarded daily from all sides, from co-ordinating our three stock listings (Canada, Us and Europe), from our onsite project managers, from our investors--there is just never enough time in a day!!!
FULL DISCLOSURE: New Age Farm is a Stockhouse Publishing client.