- A New Contender is Emerging in the U.S. Cannabis Industry
- Founded and Led By a Highly Successful Cannabis Industry Legend, Red White & Bloom (CSE: RWB) (OTCQX: RWBYF) is Rapidly Establishing Itself as a Major Force in Several Lucrative U.S. Marijuana Markets
Red White & Bloom (CSE: RWB) (OTCQX: RWBYF) was formed in 2019 when privately-held MichiCann merged with publicly-traded Tidal Royalty. The new company quickly began to build an extensive footprint in several highly desirable Midwest states, where legalization is on the upswing, and cannabis is in short supply. RWB’s seasoned management team believes it has the people and the plan to capitalize on the budding U.S. marijuana market.
American “Super-State Operator”
Having witnessed the struggles of other U.S. multi-state operators (MSOs), which have attempted to enter too many markets and, as a result, spread themselves too thin. RWB is taking a page from the Trulieve (CSE: TRUL) (OTCQX: TCNNF) playbook and is focused on dominating each state the company enters before expanding into new markets. Trulieve is well known for being the market leader in Florida.
CEO Brad Rogers stated recently in an interview with TraderTV Live: “We’re very disciplined in what we’re doing. We call ourselves Super State Operators. We’re not a multi-state operator. We’re super state, meaning that we go in [states] with a big footprint, and we dominate wherever we go.”
Essentially, RWB will seek to establish vertical operations in each state they operate in. Having ownership over the entire process, from seed to sale, not only gives the company total and complete control of their products, but it also results in significant cost savings. Once the underlying cultivation and manufacturing infrastructure are ready in each state, RWB will roll out extensive retail networks in highly desirable locations. The company will also wholesale its goods to other retailers as supply dictates, especially before the company’s retail footprint is established. This plan is already well underway in the states that RWB has entered thus far.
Michigan: Cannabis Operations in the Great Lakes State
When initially forming the company, Rogers decided that RWB would first enter the Midwestern states that had recently legalized cannabis. Michigan would be the first state they would target, due to the limited licenses available, minimal presence by other large MSO’s and some of the highest cannabis use per capita in the country.
After forming MichiCann, Rogers proceeded to strike a deal to acquire Detroit, Michigan-based PharmaCo, a privately held, vertically integrated medical cannabis company with ten operating dispensaries and licenses in hand for an additional eight. PharmaCo has extensive cultivation facilities that it uses to stock its dispensaries. Most recently, PharmaCo announced the receipt of nine additional cultivation licenses, which will give the company space for an additional 13,500 cannabis plants.
With more supply coming online, the company plans to utilize its unused licenses to open an additional eight dispensaries by early 2021. These expansions will allow Pharmaco to expand on its impressive 22% market share in the state of Michigan, which is higher than any other company. RWB’s deal to acquire Pharmaco is undergoing final regulatory approval and is expected to close before the end of 2020. After the deal closes, RWB will include Pharmaco’s revenues, which are EBITDA positive, in its future consolidated earnings.
“PharmaCo has established significant market share within the state of Michigan. Now that we have completed our go public transaction, we felt that the time was right for us to take the next step of rolling our critical mass asset base together in what we believe is one of the top 3 most important cannabis states by market size and potential,” commented RWB Chairman and CEO Brad Rogers.
Illinois: Cannabis Sales Booming in The Land of Lincoln
After finalizing the deal to acquire Pharmaco in Michigan, Rogers and his team set their eyes on their Midwestern neighbor, Illinois. Much like Michigan, Illinois transitioned from medical cannabis to recreational cannabis in the last year. The sales explosion in Illinois also mirrors that of Michigan. Due to limited cannabis licenses in the state, RWB decided to acquire Mid-America Growers, owners of the largest indoor hemp cultivation facility in the world.
The hemp facility is capable of producing pharmaceutical-grade hemp and has facilities in place to extract specific cannabis compounds for use as active pharmaceutical ingredients (API). The company has secured a $25 million offtake agreement to supply CBG isolate to a pharmaceutical company, as well a $20 million contract to grow premium hemp flower. RWB will be paid a fee to grow an ultra-premium strain of smokable hemp, which the client will then take possession of and distribute to retailers. The client has delivered 100,000 of their proprietary seeds to RWB, and the first crop is underway.
These two announced deals account for a small portion of the space available in the facility. RWB intends to secure a license to use a portion of the facility to grow premium, high-THC cannabis flower. Eventually, the company plans to continue to secure the licenses needed to make the facility one of the largest indoor, high-THC cannabis grow operations in the world. Once the company secures an appropriate cannabis supply, it intends to enter the Illinois retail market by either building new stores or acquiring high-quality existing operations.
Massachusetts: The Bay State is an Emerging Adult-Use Market
Next in line for RWB’s takeover tour was Massachusetts. Another limited license state with an emerging recreational cannabis market, Massachusetts, marks RWB’s first foray out of the Midwest. As in Illinois, the company will establish wholesale operations before rolling out a retail network. They’ve secured the land and licenses needed to build a 50,000 ft2 state-of-the-art processing facility. Once its current deals close, revenues stabilize and funding is secured, the company will begin construction.
Nationwide Branding Strategy
Like virtually all other consumer goods, the long-term success of cannabis relies on building successful brands. Brands such as Altria’s (NYSE: MO) Marlboro and Anheuser-Busch (NYSE: BUD) owned Budweiser played major roles in building up the tobacco and beer industries. A similar scenario could play out in the cannabis industry. RWB knows this and has a multi-pronged approach to address it.
First, the company began developing its own in-house brand, for sale at their stores in each state they operate in. The RWB brand will encompass the full range of cannabis goods, from flower and pre-rolls to edibles and vapes, in value and premium qualities. With RWB controlling these products from seed to sale, they should be some of the highest margin revenue drivers in RWB’s portfolio.
To jumpstart its national dispensary branding efforts, RWB signed a landmark deal with High Times, arguably the most recognized cannabis brand name. RWB will rebrand their dispensaries to High Times dispensaries. The deal will also allow RWB to produce and sell High-Times-branded products in their stores.
Commenting on the High Times deal, RWB CEO Brad Rogers stated: “Closing this deal with the only real iconic brand in cannabis and working alongside the first-class people that come with it, is just the beginning of another 45-year journey that will define RWB and High Times in this chapter of history as the best-in-class for generations to come. Let’s make America dope again!”
The terms of the deal are on a state by state basis, including Florida providing RWB with a clear path to enter the booming Sunshine State cannabis market. With recreational cannabis in Florida likely nearing, expansion into this market would fit RWB’s history of entering medical states shortly before recreational legalization is approved.
Game-Changing Platinum Vape Acquisition
In addition to RWB signing the licensing deal with the world-famous High Times brand, the company recently closed a blockbuster deal to buy another very popular cannabis brand in Platinum Vape (PV). California-based Platinum Vape was founded by the father-son duo of George and Cody Sadler. Through financial discipline and strong management, Platinum has grown into a highly profitable cannabis operator with current annualized revenues of more than USD $75 million with EBITDA of approximately 25% – 30%. PV’s full line of ultra-premium products, including pre-rolls, vapes, edibles and other cannabis derivatives, are sold in over 700 retail locations throughout Michigan, California and Oklahoma. PV products are a popular choice for many Americans, as reflected in Platinum’s impressive 84% approval rating on WeedMaps. Platinum Vape is planning to enter the Arizona market in the coming weeks.
The highly accretive Platinum Vape acquisition will likely be very beneficial to shareholders of Red White & Bloom. Purchased for $35 million upfront, PV should finish 2020 with an annual revenue run-rate of around $100 million and EBITDA of about 25 – 30%. The deal includes an additional $25 million incentive bonus, which will kick in should PV reach certain financial milestones, thus bringing the deal’s total price tag to $60 million. Considering $60 million is still less than one year’s revenues, the acquisition appears to be a tremendous bargain RWB and its stakeholders.
Despite a history of failed and drawn out mergers in the cannabis industry, RWB was able to close the PV deal in only six weeks. With Platinum Vape now a done deal, RWB will now be able to report PV’s substantial earnings in its own consolidated financials. When Red White & Bloom reports its first quarterly results with PV’s earnings included, it’s highly likely that RWB’s share price will receive a significant boost.
It’s no secret, RWB shareholders aren’t thrilled with the stock’s recent price action following the company’s IPO earlier this year. After a strong first month of trading, which saw RWB hit a high of $1.35, the stock experienced a downswing and currently sits at a bargain price of $0.61 per share.
However, if history is any indication, there may be a silver lining for RWB shareholders that could see the stock’s current share price prove to be a tremendous bargain. Especially with the PV deal closed and the likelihood of juicy earnings reports to come. Taking a look at the early trading activity from top MSOs Curaleaf (CSE: CURA) (OTCQX: CURLF) and Trulieve (CSE: TRUL) (OTCQX: TCNNF), you’ll see that both companies experienced similar growing pains early on. After bottoming out, Curaleaf and Trulieve produced massive gains for its shareholders that took a risk and invested during those tough early days. Currently, shares of RWB appear to be grossly undervaluation relative to its MSO peers. Based on the same financial metrics used to value other top U.S. cannabis names, RWB should be trading for around CND $3 per share.
RWB’s valuation disparity likely boils down to the fact that the company has not yet had the opportunity to report its full earnings. While RWB has a great story, many high net worth and institutional investors need to see real audited financial statements before making a sizeable investment in a company. With the Platinum Vape deal completed and PharmaCo likely to close soon, RWB is now in a position to report big-league numbers on its future quarterly reports.
Once Red White & Bloom releases earnings that include a full quarter of revenues from PV and PharmaCo, it’s likely investors will begin to pile in. As a result, RWB’s valuation should rapidly adjust to reflect the vastly improved numbers and, in the process, reward the loyal shareholders that took a risk.
The legal cannabis industry in the U.S. is still in its infancy and is poised to continue growing rapidly. The Canadian cannabis bubble, which popped in 2018, created many marijuana millionaires. The Canadian market pales in comparison to the monstrous marijuana industry emerging in America. There is a once in a lifetime opportunity for investors to capitalize on an emerging industry that will undoubtedly dwarf the Canadian cannabis boom. To make the most of that opportunity, cannabis companies will need visionary management teams and a rock-solid business plan. Red White & Bloom believes that it has both in spades.
RWB CEO Brad Rogers has led several highly successful Canadian cannabis companies and brought that wealth of knowledge and experience to the United States market. Red White & Bloom is now in the early stages of building the next industry-leading U.S. multi-state cannabis operator. The company’s deep penetration into Michigan, world-class indoor hemp growing facility in Illinois and partnership with renowned brands like High Times should make RWB a cannabis industry powerhouse. Red White & Bloom’s undervalued share price also makes it a very attractive investment compared to other U.S. Cannabis Stocks that have become quite expensive in 2020.
RWB Management & Leadership Team
Brad Rogers – Chairman & CEO: Mr. Rogers cut his teeth in the very early days of the Canadian cannabis industry. Rogers was the co-founder and Chief Operating Officer of Mettrum, a medical cannabis company that was later purchased by Canopy Growth (TSX: WEED) (NYSE: CGC) (FRA: 11L1), marking the Canadian cannabis industry’s first major merger. After Mettrum, Rogers went on to become President and COO at CannTrust, building the Canadian licensed producer (LP) into one of the top 5 cannabis companies in Canada. Rogers parted ways with CannTrust long before the company’s Health Canada regulatory issues began, to pursue greener pastures in the newly emerging American cannabis industry. Rogers’ move to the U.S. market would lead to him becoming the founder and CEO of MichiCann, which would later become RWB. Brad Rogers is currently the Chairman and CEO of Red White & Bloom and believes RWB will be his greatest success yet.
Theo van der Linde – Director & CFO: Mr. van der Linde is a Chartered Accountant who has spent over 20 years of experience working in finance for mining, manufacturing and retail companies. He brings a wealth of technical knowledge and experience in public markets, capital raises and business development.
Michael Marchese – Chief Marketing Advisor: Another veteran of the Canadian cannabis industry, Michael co-founded Aleafia Health (TSX: ALEF) (OTCQX: ALEAF) (FRA: ARAH), which he continues to serve in an advisory capacity. He partnered with Rogers to enter the U.S. market by co-founding MichiCann. An expert in branding and marketing, Mr. Marchese also owns his own branding firm, Marchese Design.
Anne Hyde – President, Mid-American Growers: Ms. Hyde is a Certified Public Accountant overseeing RWB’s hemp cultivation facility in Granville, Illinois. She has worked in corporate finance for over 25 years; Anne served as VP of Finance and Administration at Mid-American Growers’ former parent company from 2014 until the RWB buyout in 2019.
Investor Research Links:
- CDN Listing | CSE: RWB
- U.S. Listing | OTCQX: RWBYF
- Website | IR Website | Investor Deck | RWB Chart | RWB Email Alerts
- Red White & Bloom Closes $25 Million Bought Deal, With Fully Exercised Over-Allotment Option
- RWB Closes Highly Accretive Platinum Vape Acquisition Ahead of Schedule
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- Red White & Bloom Exercises Call Option to Acquire 100% of Michigan-Based PharmaCo
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- This Weed Stock Appears Way Undervalued and May Actually Benefit From a 2nd Wave of the Pandemic
- Red White & Bloom Closes Landmark High Times Deal
Watch CEO Interviews:
- VIDEO: TCI Interviews Brad Rogers, CEO of Super State Operator Red White & Bloom
- VIDEO: TraderTV Live Interviews Brad Rogers, CEO of Super State Operator Red White & Bloom
This U.S. Cannabis Stock Appears to Be Way Undervalued and May Actually Benefit From a Second Wave of the Pandemic
Red White & Bloom is a paid client of The Cannabis Investor. The Cannabis Investor holds a position in RWB.
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