In this edition of "Rising High," The Fly conducted an exclusive interview with William MacLean, chief executive officer of Wildflower Brands (WLDFF), a Vancouver-based company that develops and designs brands focused on plant-based wellness products. Here are some of the highlights:
UNSUSTAINABLE BUSINESS MODELS: Cannabis stocks have started to decline despite decent outlooks and MacLean said he believes it is due to unsustainable business models. “You had the green rush where investors were throwing money at investments left, right and center and just believing that whatever they did would make money,” he said. This led to initial licensed producers and publicly-traded companies having access to huge amounts of capital with business models based on growing, getting more distribution and getting more product, the CEO said. “They didn’t develop a business model at the end of the day that had a home for the products to go to,” he said. “They were just believing if we grow it, we can sell it and we’d make money.” MacLean said investors began to deploy capital more stringently and through different models. “Ultimately what this created was another wave of investments that were what some investors would call toxic investments, or toxic capital, where there were convertible notes and all these different structures that would put negative pressure on the stock if certain criteria weren’t met or goals reached,” he said. The CEO added companies started acquiring, merging or forming joint ventures with companies with valuations “that were raised through roof” leading to write offs and write downs on assets that would continue to put downward pressure on capital. “Based on the fact that you would have all that downward pressure, capital has now started to dry up and business models were terribly capital dependent, you now see this environment where a lot of these companies are positioned to fail.” He said evidence of this can be seen in the CEO transitions at Canopy Growth (CGC) and Aurora (ACB) as well as workforce reductions at Aurora, Tilray (TLRY) and Supreme (SPRWF). “At the end of the day, if you built your company to be cash dependent, you have not built a sustainable model and you’re going to be in trouble this year,” he said.
BACK TO FUNDAMENTALS: When asked about how he sees the cannabis landscape moving forward, MacLean said there has already been a shift towards companies looking for more sustainable business models and going back to the fundamentals. “These companies are going to start being more focused on their value proposition and more focused on what part of the market or sectors they’re focused on,” he said. “You’re going to see a lot of cutbacks from excess spending and anything outside of what their core competency should be.” The CEO said he believes there will be a clear separation of companies that are progressing versus companies that are in a position to fail. “The problem is that some of these companies that might be positioned to fail might be really big ones that really impact the entire sector,” he said. However, MacLean added that he believes investment opportunities are abundant as family offices emerging as investors in the space. “What family offices tend to do right is they’re never the very first ones to move on an opportunity or a new wave,” he said. “Instead they kind of want to sit back and see how things play out before they invest in that and then when they do invest, they tend to invest a lot longer-term, not the in and out you often see.” The CEO said a pullback in valuations has created a new entry point for family offices and as regulations start to roll out, they have become more open to investing capital.
STEADY GROWTH: MacLean said Wildflower was never capitalized massively to begin with and therefore has grown at a very steady rate. “We haven’t grown super fast and we haven’t had to get a ton of capital in the door to do it,” he said. “We’ve built it based on fundamentals built on creating a profitable business model.” The CEO said the only reason the company is not making a lot of money currently is investment to continue growth. “I think what you’re going to see is a lot of companies, especially ourselves, we’re going to be really focused on the greatest ROI on any investment,” he said. MacLean added that Wildflower also has a huge benefit of access to the consumer through its City Cannabis acquisition. “We have now done almost half a million transactions in the cannabis retail stores that provides immense feedback,” he said. He said he sees the retail part of the sector fueling the company for the next few years, but the wellness space and the CBD side of the company as the long-term component. “We’re really just starting to scratch the surface on the wellness side in CBD and cannabis in general and we see that as a long-term opportunity,” he said. “Combining these two allows us short-term growth and profitability eventually leading into our long-term expansion.”
CHALLENGES: When asked about the biggest challenges facing the company, the CEO said he believes capitalization has always presented a hurdle. “We’ve never had tens and tens of millions of dollars in the bank to go and do whatever we wanted,” he said. “Now we’re having certain funds and investors looking at us because we are one of the few that essentially have a sustainable business model and strong cash flow.” Looking at the market as a whole, MacLean said he sees one of the biggest obstacles in how cannabis firms are lumped together regardless of their success or failure. “You know if Canopy comes out with good earnings, the entire sector will go up,” he said. “We’re not being judged independently on our own companies right now, which is an issue.” The CEO said he sees another challenge from the bad decisions made by the CEOs and executives that have jumped into the industry “but have no business running a cannabis company... They have basically created a such a mess in the industry that now the capital for the investment community is really drying up because there’s a lot of people that have a bad taste from investing in it.”
OPPORTUNITIES: As the cannabis space develops, MacLean said he believes the biggest opportunity in the market is in wellness. “If you look at the rec side globally, what’s the size of the global recreational cannabis market? You know, arguably you could say somewhere in the $50-$100B range, right?” he said. “Then why when you look at the nutraceutical industry it is more than two, three, four times that. I really think the opportunity lies in the wellness side of things, but I think it’s still going to be quite some time before that really plays out.”
FLOWER VS. DERIVATIVES: When asked about how he expects the use of flower and derivatives to shift over time, the CEO said he sees both vaporizers and topicals being huge parts of the industry moving forward. “Obviously with the whole vapegate that happened over the last little while with the illicit vaping products on the market causing harm, that definitely slowed that growth,” he said. “We lost about 80% of our vaporizer business during this whole thing but I would have singled out vaping as one of the major ones.” MacLean said he also expects topicals to be a large portion of the sector because they’re not ingestible. “The barrier to entry into market is a lot lower for topicals so I think that’s going to be one of the largest segments initially, long-term maybe not but initially yes,” he said. “In terms of other delivery systems out there, I think you’re going to see ingestibles play a major part. It’s going to be a part of your regular health maintenance and supplementary regimen.”
OTHER CANNABIS STOCKS: Other publicly-traded companies in the space include Aleafia (ALEAF), Aphria (APHA), Aurora Cannabis (ACB), Biome Grow (BIOIF), CannTrust (CTST), Canopy Growth (CGC), Canopy Rivers (CNPOF), Cresco Labs (CRLBF), Cronos Group (CRON), CV Sciences (CVSI), Delta 9 (VRNDF), DionyMed Brands (DYMEF), Elixinol Global (ELLXF), General Cannabis (CANN), Greenlane (GNLN), GrowGeneration (GRWG), Harborside (HSDEF), Hemp Inc. (HEMP), Hexo (HEXO), India Globalization Capital (IGC), Indiva (NDVAF), ICC International Cannabis (WLDCF), Innovative Industrial Properties (IIPR), Khiron Life Sciences (KHRNF), Liberty Health Sciences (LHSIF), MediPharm Labs (MEDIF), MedMen Enterprises (MMNFF), MJardin (MJARF), Organigram (OGI), Origin House (ORHOF), Planet 13 Holdings (PLNHF), Real Brands (RLBD), Sproutly (SRUTF), Sunniva (SNNVF), Tetra Bio-Pharma (TBPMF), Tilray (TLRY), Trulieve (TCNNF), Vireo Health (VREOF), Wayland Group (MRRCF), WeedMD (WDDMF), Westleaf (WSLFF) and Zynerba (ZYNE).
