Last year, Invictus MD Strategies (IMH.C) came out with a plan to vertically integrate the cannabis sector. It hit the ground running with a lot of deals for everything from magazines to vapes to fertilizer retailers to what have you. And for a while it ran well, then it stalled a bit, then the weed sector cratered a bit, then the company started rolling away its bits.
When the dust had settled, Future Harvest, an Alberta based home grow supply retailer, was still in the family, and Edison Vape (now Podavape) was hanging in.
But while, at a quick glance from the outside, it appeared Invictus was folding up the card table and loading up the station wagon, CEO Dan Kriznic, who also serves as CFO to lithium power player Lithium-X (LIX.V), says while the duck appeared to be floating calmly for the last year, there’s been a lot happening behind the scenes. More than he was comfortable talking about, at risk of appearing too promotional.
With EMH stock flying fairly hard, I talked to Kriznic Friday about what’s really going on.
“There’s been a lot of activity going on in the Future Harvest component of the company that’s fairly nuts and bolts, the kind of stuff you can’t really news release,” Kriznic told me Friday. “We were quite silent on the Sunblaster sale (Sunblaster products made up about 60% of Future Harvest’s revenue, and were sold for $4.8 million recently which allowed Invictus to lay out a $1m dividend to shareholders) through that process, because you don’t want to spoil the deal. and the Podavape vertical is still being developed, so we didn’t want to keep saying the same thing ; “Soon.” Certainly some people assumed the company had slowed down. We just had a lot going on under the hood and, ultimately, we’ve delivered nicely for shareholders.”
Future Harvest is not a new deal. In fact, it’s been around for two decades, having built up into a strong global distribution business, but under Kriznic’s tutelage, he says revs are up around 50%, with other areas of the business benefiting from Invictus being at the wheel.
“Look, we always intended to be basically a private equity deal, to bring structure, connections, a sales process, and guidance to the table,” says Kriznic. “I can tell you, originally, Future Harvest thought they could get $3m max for the Sunblaster sale. And we got $4.85m million, so that’s a nice return and validation of our strategy.”
And the shareholders duly received half of that extra profit, in the form of a dividend.
“In terms of our stock,” says Kriznic, “we have our dividend date on November 10, so we hope to see a lot of shareholders buying to get that 11c or 10c per share, and subsequent they’ll still get the benefit of our planned spin-off of Future Harvest. We think we’ll put out enough news between now and then to keep the market updated, and I think there’s going to be info that people will get on a regular basis that will compel them to hold the stock past the dividend date.”
Yep, you heard right – Invictus isn’t sitting on their laurels with Future Harvest, they’re looking to spin it out, mostly as a dangle for a larger player to come grab their significant IP, distribution channels, and smart peeps.
“That side of the business is definitely growing,” he says. “We’re shipping to the US, Canada, UK and Japan, so we have great distribution channels and we’re hoping to take Future Harvest to double digit millions in revenue in the next 3-5 years.”
“The company was really built by growers for growers, with a chemist on site, a large number of KSUs relating to helping grows bring about higher quality and yield, and we have among the lowest heavy metal content on the market.”
He ain’t lyin’. The Washington Agricultural Board did a study among various fertilizer options recently, after some local growers were temporary closed because they were using products not listed on the official product register. When those companies complained their preferred options were better than the approved ones, regulators took a look and found, “by far, Future Harvest products have the lowest heavy metal content, and growers are looking for products that wont run those high metal counts because it’s medicine,” says Kriznic
“We also put out a press release today on teaming up with UBC on research into lavender, which has a lot of the health benefits we’re seeing in cannabis.”
Personally, I made some money over the last few months on Invictus which, in consideration of that Sunblaster sale, which was twice the market cap of the company, I thought was an arbitrage situation. Indeed, that turned out to be part of why the company shot upwards, with a real lift since news of the dividend. I get as many questions about Invictus as any other opportunity, hence this interview, and as news started to leak out, the share price started to jump.
“I still feel it’s an arbitrage situation,” says Kriznic. “That’s why I did a dividend for shareholders. We didn’t require the money to be left in the spun out company, so we’re leaving enough cash back for us to be able to properly commercialize Podavape, and handing some back to the collective owners of the company.”
And what of Podavape?
“The prototype is taking a while,” says Kriznic, “but it’s just a process you go through until it’s ready. That side of Invictus will remain as is, but will be looking at other assets and acquisitions. Love is in the air with cannabis right now, so it would be crazy not to look at something new. In actual fact, it’s a perfect opp for someone to vend in an asset, as it’s already a cannabis company. It’s not like we’re a gold company and changing business and doing things that way. We’re looking for acquisition opportunities again.”
And as for the chance of an exit: “Scotts Miracle Grow jumped 30% when it said it was getting into the cannabis game recently, and has been buying up companies in our space, so we’re working to make sure large companies will see us be a target for the future.”
For mine, a few days ago when asked about Invictus, I said ‘maybe,’ noting that with the stock price up and the dividend in November, when the California referendum happens, that maybe other assets were going to climb faster.
But I get the sense Kriznic is not just taking advantage of a sector rise. He’s got plans that are afoot.
When I put that to him his reply was short.
— Chris Parry
FULL DISCLOSURE: I have no commercial relationship with Invictus, though have in the past served as a marketing consultant for them and recently owned stock.Disclaimer: ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.