In this edition of "Rising High," The Fly conducted an exclusive interview with Chris Driessen, chief executive officer of SLANG Worldwide (SLGWF), a global cannabis consumer packaged goods company with a portfolio of brands. Here are some highlights:
CANNABIS CPG: SLANG Worldwide is a cannabis company in the CPG sector with a portfolio of six brands carried in over 2,200 stores across twelve U.S. states, Canada and Puerto Rico. The company specializes in acquiring and developing regional brands as well as launching new brands to capture global market opportunities. “We really derive revenue three ways and all of those are around branded products,” Driessen said. The first bucket is a channel where SLANG sells CBD products and hardware available on multiple continents, particularly North America and Europe, he said. “We also sell CBD products with our Lunchbox Alchemy CBD line,” he said. “Those products are available in over 600 stores in the U.S. and 40 different states.” The CEO said the company’s second bucket is its core markets of Colorado and Oregon. “A core market is really kind of our testing grounds and a core market means that we grow it, we manufacture it and we distribute it,” he said. “We are physically doing those things ourselves and those are plant-touching assets where we’re getting wholesale revenue for the sale of those branded products.”
The third bucket and one of SLANG’s most powerful channels is its emerging market channel, according to Driessen. “What that means is that we partner with a company, a Trulieve (TCNNF) for example, where it’s their facilities, it’s their cannabis, it’s their license and we’re assisting them with bringing those products to market.” Emerging markets include California, Canada, Florida, Maine, Massachusetts, Michigan, Nevada, New Mexico, Ohio, Oklahoma, Puerto Rico, Vermont and Washington. SLANG has partnered with Natura Life + Science to re-enter the California market with products available in the second quarter, the CEO said, as well as with Trulieve to re-enter the Massachusetts market with products available this summer. The company also expects to bring products to the Michigan market in Q3 through a partnership with Gage Growth and to Washington state in 2H21 through a Snowcrest partnership. “We’re very focused on metrics like branded servings, branded unit sales, market share,” he said. “KPI’s basically that you would see in a traditional CPG company.”
COMPETITIVE EDGE: When asked about the company’s key differentiators, Driessen cited the size of the SLANG network, the scope of its products and the speed of bringing those products to market. “The size and the number of places where our brands are available is pretty impressive,” he said. “Second is the scope of what we offer. If you look at most brand focused companies in cannabis, maybe they have a gummy, a vape pen or a flower brand. We have six brands that compete and win categories like vape, edibles, concentrates and pressed pills.” The CEO said SLANG offers 130 different SKUs bringing a larger offering to the table than many other companies. “The reason that’s advantageous to the retailers that we work with is from an efficiency standpoint, you want to work with fewer people that offer you more things,” he said. “That’s exactly what we do and we do that very well.” The company’s speed to market also provides SLANG with a competitive edge, Driessen said. “Our ability when we come out with a new product to spread that far and wide and cast a very wide net is really one of our biggest strengths,” he said. “We’re able to take a really wide perspective from being in all these different markets, formulate something, bring that to market, have proof-of-concept and then we take that show on the road to our emerging market partners.”
EARNINGS: At the end of April, SLANG reported fourth quarter revenue of C$9.7M and total comprehensive loss C$34M, which compares to revenue of C$8.7M and loss of C$208M in 4Q19. The company also guided to Q1 revenue of approximately C$9.9M, a 112% increase compared with C$4.7M in 1Q20. “What you’ve seen particularly over the last three quarters is revenues are increasing quarter-over-quarter,” the CEO said. “That’s a testament to those three buckets we talked about earlier and the progress we’re making in each of those.” Investors should expect losses to continue to decrease as SLANG continues to move forward, according to Driessen, and the company to break through the profitability threshold. “We reported our first adjusted positive EBITDA quarter in Q3 and we’re just underneath that in Q4,” he said. “It’s a bit variable as we bring in all these new businesses, acquisitions and markets. We expect that to level off in the second half of 2021 and break through that profitability threshold on a consistent basis moving forward all while continuing to increase revenue.”
LEGALIZATION: When asked about the potential federal legalization of cannabis in the U.S., Driessen said the best way to approach it is cautious optimism. “If you look back historically, both parties have had an opportunity to grab hold of cannabis and it’s really an interesting phenomenon in that you see such high approval ratings really across the board,” he said, noting nearly 70% of the public supports adult use. “It’s also been very, very strange to see that neither party has said this is my thing.” The CEO added democrats have been a bit more vocal, however there is bipartisan support across the issue. “Nothing in politics moves quickly unfortunately and I think it’s going to be some stair-stepping up to legalization,” he said. “It’s my personal opinion that if that’s going to happen, the best chance of that is before November of next year. Obviously we’ll go into mid-terms then and who’s to say whether the democrats keep the Senate and the House?” Driessen said if democrats are really serious about adopting the issue and putting forward reform, the opportunity is now. “I just don’t see that the genie gets back into the bottle,” he said. “I am really hoping that one of these parties, or both, say, ‘Look it is so far past time that we do this’. Whether it’s for social equity reasons, whether it’s for financial reasons or whether it’s for health reasons, the writing is on the wall, it’s just a matter of when.”
DELIVERY METHODS: As technology advances and delivery systems for cannabinoids become more diverse, the CEO said he expects the cannabis industry to continue to change and innovate. “We’ve been doing this since 2010,” he said. “Our extraction lab in Denver is the longest continuously operated licensed extraction lab in the country so we have seen really kind of a massive evolution.” Dispensaries have come a long way in ten years, Driessen said, noting they used to be dimly lit places with a few homemade edibles and maybe some hash and flower. “Now you walk into dispensary, there could be 1,000 different products from vape pens that are doseable to smart carts that know what kind of extracts are in those,” he said. “You’re going to see the continuation of that innovation as technology continues to improve.” The CEO added that repeatability of experience will be the key to success. “My job as a product manufacturer is to give consumers a repeatable experience, to give them the opportunity to generate that same feeling again,” he said. “When you’re able to do that time after time, when you’re able to keep that brand promise, that’s what develops brand loyalty and that for us is the golden goose.”
CORONAVIRUS: The coronavirus pandemic has impacted many companies globally in the cannabis space and Driessen said it was a mixed bag for SLANG, which is based in Colorado, one of the first hot spots for the outbreak due to international tourism. “It was March 16 that everything kind of hit the fan here in Colorado,” he said. “Then the strangest thing happened about two months later, people were working from home, there was a lot of fear and consumer uncertainty and what that generated was, ‘Well wait a second I’m at home, I have more opportunity to consume cannabis.’ You saw the numbers really start to go up in June in particular.” The CEO said SLANG had its first cash flow positive month in company history last June. “That’s going to be variable,” he said. “We’re inching towards that being the norm and not the exception.” Driessen added the pandemic also brought about changes to consumer preference and buying habits with shifts towards curbside pickup and delivery. “Folks were saying, ‘I’m not real sure if I want to go inside a store and talk to a stranger so I’m going to go to the store less often’, but what that meant was that their basket size was getting larger,” he said. “The other really interesting phenomenon we saw was the shift in what products were being purchased, some higher-end concentrates were really showing incredible growth year-over-year and all of sudden that fell off a cliff.”
The CEO said he suspects as more people lost their jobs or were put on a fixed income, people were trying to be more mindful of their money. “That didn’t mean that they consumed less cannabis, in fact, it was the exact opposite,” he said. “They started consuming more just because they have more opportunity to do so, but what they were purchasing changed dramatically. We saw for instance a massive transition from a half-gram vape cartridge to a one-gram. We also saw a massive shift from some higher-end products like live resin or premium focused edibles into more value-based products.” Driessen said SLANG was able to capture demand from multiple angles as it carries and produces so many different products under many different brands. “Our ability to shift with what the consumer sentiment and preference was, was something that really set us apart and you’ve seen that in our Q3 numbers,” he said. “That’s why revenue continues to increase quarter-over-quarter.”
CHALLENGES: When asked about the biggest challenges facing the industry, Driessen pointed to the inefficiency of operating national brands under current regulations. “I’ve got these twelve states we have products in, as well as Canada and Puerto Rico,” he said. “I’ve got to either work with or create a facility in each one of those fourteen places to make a product. Whether you’re in Portland, Maine or Portland, Oregon, those are radically different markets in size, but they’re basically doing the same things in those facilities so the inefficiency that’s created by not having interstate commerce is nuts.” The CEO added SLANG works with partners who are currently forced to grow cannabis a mile off the Las Vegas strip and in Northern Maine due to state regulations creating a huge impediment. “The other piece in this federal illegality is you’re preventing some of the largest institutional funds,” he said. “Institutional investors you have in the space are super limited. You don’t really have large mainstream funds that are participating yet, but we know they will.” The CEO noted some big name CPG companies and large institutional investors have expressed interest in the industry, but concerns about risk to their core businesses has outweighed that interest. “We all know the U.S. is ten times the size of Canada so imagine when those floodgates open here,” he said. “For me, having some meaningful reform will not only give people the confidence to invest in cannabis, but then you look at the tactical stuff, the interstate commerce and the access to banking,” he said. “These are all going to be catalysts for the industry, especially for the American operators that are publicly traded. It’s going to be an enormous tailwind.”
OPPORTUNITIES: As the cannabis space develops, Driessen said he sees opportunities as cannabis becomes more accepted and new markets open up. “Whether its medical markets going rec, newer people coming into cannabis or states loosening up their laws like Texas,” he said. “Texas is the second most populated state in the country and is a complete afterthought in the cannabis industry right now. One day, that’s going to be a massive opportunity.” The CEO also noted New York’s move to adult-use, which he expects to take a year to a year and a half to come to fruition. “That’s a huge opportunity and we’re already having multiple conversations with folks there about how to bring our brands to market,” he said, adding SLANG is well positioned to compete and win when those things happen. “I don’t have to have a massive cultivation that I’m tied to because of a huge capital expenditure,” he said. “I’m able to take the SLANG show on the road very quickly in a very capital-light way and bring brands to a place where they haven’t been before. That’s a huge opportunity.” Driessen added there is also a lot of promise in the publicly-traded American operator space. “These states are going to continue to legalize and ultimately the country will legalize. If you look at these businesses now, they have so many handicaps on them,” he said. “You start removing some of those handicaps and then all of sudden the financials, particularly the profit of these businesses start to improve at a very rapid pace. “
OTHER CANNABIS STOCKS: Other publicly-traded companies in the space include Acreage (ACRHF), Akerna (KERN), Aleafia (ALEAF), Aphria (APHA), Aurora Cannabis (ACB), Auxly Cannabis (CBWTF), Body and Mind (BMMJ), CannTrust (CTST), Canopy Growth (CGC), Canopy Rivers (CNPOF), Clever Leaves (CLVR), CordovaCann (LVRLF), Cresco Labs (CRLBF), Cronos Group (CRON), CV Sciences (CVSI), CURE Pharmaceutical (CURR), Delta 9 (VRNDF), Emerald Health (EMHTF), Fire & Flower (FFLWF), FluroTech (FLURF), General Cannabis (CANN), Greenlane (GNLN), Green Thumb Industries (GTBIF), GrowGeneration (GRWG), Harborside (HBORF), Hemp (HEMP), HempFusion (CBDHF), HEXO (HEXO), High Tide (HITIF), IM Cannabis (IMC), India Globalization Capital (IGC), Indiva (NDVAF), Inner Spirit (INSHF), Innovative Industrial Properties (IIPR), Khiron Life Sciences (KHRNF), Liberty Health Sciences (LHSIF), Lowell Farms (LOWLF), MediPharm Labs (MEDIF), MedMen Enterprises (MMNFF), MJardin Group (MJARF), Neptune Wellness (NEPT), Omnicanna (ENDO), Organigram (OGI), Planet 13 (PLNHF), Skye Biosciences (SKYE), Sproutly (SRUTF), Stem Holdings (STMH), Sunniva (SNNVF), Supreme Cannabis (SPRWF), Valens (VLNCF), TerrAscend (TRSSF), Tetra Bio-Pharma (TBPMF), Tilray (TLRY), Village Farms (VFF), Vireo Health (VREOF), WeedMD (WDDMF), Wildflower Brands (WLDFF), YSS Corp. (YSSCF), Zynerba (ZYNE) and 4Front Ventures (FFNTF).
