Marijuana Business Magazine September 2019

Marijuana Business Magazine | September 2019 94 T he pace of change in the North American cannabis industry, particularly in the United States, is so fast that consolidation is an inevitable byproduct. It’s not necessarily a case of eventual winners and losers but certainly bigger buyers and smaller sellers as the industry matures and the scramble for market share intensifies. So how do companies—particularly those newer to the industry—position themselves to take advantage of the op- portunities that may come out of such consolidation? One of the things they can do is make themselves as attractive as possible to potential buyers, preferably early in their existence. “There is an exit opportunity for private companies, and the exit is today,” Scott Greiper, president of New York-based investment group Viridian Capital Advisors, told the audience at MJBizConNEXT in New Orleans in June. “There are buyers in the hall.” But would-be acquirers are not going to buy your company unless you have a well-run business in the first place. It isn’t enough simply to declare your exit strategy is to be acquired when you don’t have the building blocks in place to be a desirable target. PATH TO PROFITABILITY Paul Henderson, CEO of Grupo Flor, a Salinas, California-based, vertically inte- grated company specializing in cannabis real estate management, recognizes that. Asked if the company had an exit strategy from its inception in 2015, he emphatically replied no. “Back in 2015, nobody really had a vision of being a larger company, nobody had really done an RTO (reverse takeover) in Canada,” he told Marijuana Business Magazine. “Nobody had bought a company of size.” Instead, the focus for Grupo Flor was always on building gradual, consistent profitability through its real estate operations. Henderson predicts the company will be profitable in the fourth quarter of 2019. Now, Henderson is doing the rounds with Canadian investment banks, possibly with an eye toward going public as one form of exit from the private space. But his options remain open. “We could go public if we decide to do that. We are running down that path, keeping the pulse on that,” he said. “But we are also being circled as an acquisition target, and so we have to be flexible, see how things might change; it’s just as likely either option.” For now, Grupo Flor’s focus remains on consistent profitability from its operations as the company simultaneously contin- ues to raise money from investors—it is currently exploring debt options to raise capital and will continue to seek either equity or debt raises next year. BE BOUGHT OR LIST? Green Flower Media, a cannabis education platform, is not as far along in its development, but thoughts of potential exit are still there, CEO and co-founder Max Simon said. The Ventura, California-based business, which provides certification programs to professionals in the cannabis industry and training courses for companies, just completed a $20 million Series A raise, which it will use to expand content and triple its number of employees. Simon cited higher education companies providing curriculum services or cannabis companies that might use Green Flower’s products as examples of potential acquirers. But the current focus is on building an attractive company—through securing funding, expansion and hiring the right employees—whatever the eventual outcome might be. “We are still quite a few years from an exit—whether that means going public or being acquired,” Simon said. “That will be based on the scale of growth over the next few years.” One company that has successfully exited the private space is Jushi, a Florida-based cannabis firm that focuses on dispensary operations and brands. Max Simon. Courtesy Photo Many founders start companies with the eventual goal of selling or going public, and it is never too early to start planning for this outcome. We spoke with cannabis executives about exit strategies, and they gave the following tips: • Get your financial house in order. Many companies won’t even consider acquiring businesses unless they are well run and have immaculate balance sheets. • Now is a good time to consider a sale. “There are buyers in the hall,” according to Scott Greiper, president of Viridian Capital Advisors. • Focus on operational profitability, even if you are actively courting investors. • Create a brand that is an extension of your values, and position yourself as a target with competitors you trust. EXIT RAMP UP