On May 15, 2019 TransCanna (TCAN.C) announced an L.O.I with Tres Ojos Naturals, to acquire the branding asset package, Soldaze, which produces cannabis-infused fruit snacks in California.
Before we get into the Soldaze deal, let’s review TransCanna’s 4-pronged business model:
- Procurement – leveraging relationships with California farmers to access biomass.
- Branding & Design – music and beverage industry vets creating 15 premium brands.
- Transportation and Distribution – unified network includes 5 strategic facilities throughout California.
- Sales & marketing: acquiring and creating premium products with in-house sales team selling directly to dispensaries
TransCanna provides investors access to a “closed loop ecosystem” built for consistency, reliability, and scale.
TCAN owns one of the largest vertically-integrated cannabis focused facilities in California with access to over 39 million residence and 240 million visitors per year.
“Our 3-storey multi-purpose facility in California reinforces our strategy to be fully self-contained in our ecosystem,” stated Jim Pakulis, CEO of TCAN, “We also have an additional 5 acres in the green zone adjacent to the facility to build up to 600,000 sq. ft. grow facility to supply our own biomass for the brands we acquire or create.”
The “closed ecosystem” concept means that TransCanna must have expertise in multiple disciplines that aren’t naturally complementary.
Farmers aren’t always good salesmen.
Branders don’t necessarily understand state drug laws.
Facility operators could bungle dosage control.
Salesmen may not grasp distribution logistics etc.
TransCanna IPO’d on Jan 10, 2019 – so it’s a little early to determine whether it has the breadth and depth of talent to achieve its ambitions.
One thing we can say for sure is that “the market” has a lot of confidence in TCAN.
If the chart below was music – it would be Joseph Haydn.
If it was an actress – it would be Scarlet Johansson.
If it was sky – it would be a Tofino sunset.
It’s the most beautiful chart you’re going to see all day.
Pakulis and his team reviewed over 100 branded products in California. The acquisition vetting process targets products that meet the following three criteria:
- Upward trending revenues
- differentiation from competing products
- SKU velocity
SKU stands for “Stock-Keeping Unit”. The term is often used synonymously with “Product”.
But unlike a product, an SKU is bound to a particular location. That distinction is important. For instance, a best-selling book will have one ISBN barcode. But if a bookstore sells that book from a table at the entrance door, in the fiction section, the “Hot Sellers” rack and the in-store coffee shop – that book has 4 SKUs.
SKU Velocity is the speed at which your product is finding new retail locations. If normal velocity is “miles-per-hour”, SKU velocity is “new locations-per-month”.
During 2019, SolDaze has created a popular line of fruit-based, organic edibles. Initial bulk sales to dispensaries triggered “almost immediate” repeat orders.
“We’re now at the stage where we need to expand throughout California,” stated Shawn Shevlin, founder and president of SolDaze. “TransCanna’s platform will provide SolDaze the tools and guidance that are mandatory in order to be successful and scale in California.”
TransCanna is growing new limbs through aggressive deal-making.
On May 9, 2019, TCAN announced a pending deal with Persuasion Brewing – a private brewing company located in Modesto, California. Inside TransCanna’s 196,000-square-foot facility, Persuasion Brewing will produce a variety of different CBD infusion non-alcoholic beers.
“TransCanna is supplying the facility, capital, software, distribution and marketing platform, and we’ll supply the intellectual property and knowhow to create a superb CBD-infused non-alcoholic beer,” stated Chad Swan, president of Persuasion Brewing
“We believe that our first beverage product should be a private labeled non-alcoholic CBD-infused beer,” stated Pakulis, “Because it’s the least expensive method to generate the greatest margins as quickly as possible.”
TransCanna/SolDaze Deal Highlights
- Non-refundable USD $50,000 deposit already paid on execution of the LOI
- Cash payment of USD $350,000
- 660,000 common shares in the capital TransCanna
The Purchase price is payable in installments over a 2-year period. If the sales of SolDaze products meet specific revenue targets – the installment schedule may be accelerated. If the agreed-upon revenue targets are not met – and the number of shares issuable may be reduced by up to 37,125.
The deal remains subject to due diligence, which is to be completed within 45 days of the date of the LOI.
Remember: 1. Upward-trending revenues 2. differentiation from competing products 3. SKU velocity.
“The snack line from SolDaze, and specifically the cannabis-infused mango products, meets all three requirements,” stated Pakulis.
Full Disclosure: TransCanna is an Equity Guru marketing client, and we own the stock.
