On June 3, 2019 TransCanna (TCAN.C) announced that its 100% owned subsidiary, TCM Distribution has received an adult-use cannabis manufacturing permit and an adult-use cannabis distribution permit from the City of Adelanto, CA (pop. 30,000).
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.
Adelanto is a desert town situated two hours east of Los Angles.
It used to be famous for having three prisons inside its city limits – two of them owned by the $3.1 billion Geo Group (GEO.NYSE) who operate “enhanced in-prison offender rehabilitation programs.”
Last year, the U.S. spent about $51 billion on the war on drugs. That’s a $450 bill for every U.S. taxpayer. In 2017 (the most recent year with detailed statistics) there were 1,632,921 drug law violations – including 659,700 people arrested for marijuana possession – which is now legal in 11 states.
Here’s MJ repping the caged MJ users.
The incarceration business did not deliver the promised economic rewards to Adelanto. In a recent visit to the town, we were told by numerous local business leaders that prison guards typically commute from larger urban areas – therefore do not pay land taxes or shop in Adelanto. 39% of Adelanto residents live in poverty.
There is some indication that the U.S. political appetite for mass incarceration is finally waning. No current presidential candidate is floating a “get-tougher-on-crime” platform. President Trump recently announced modest criminal justice reform that will allow early release of thousands of federal prisoners.
Two months ago, Adelanto city officials severed ties with the federal government and the GEO group, ending Adelanto’s role in managing CA’s largest immigrant detention facility.
As Adelanto cools on the human-caging business, it is opening its arms to the cannabis industry.
In May, Adelanto City counsel approved reducing tax on transportation, distribution, manufacturing and cannabis testing lab services from 5% down to 1%.
The city also voted to reduce the cultivation tax from $5 per month per square foot to .42/month per square foot. The dispensaries tax was also reduced from 5% down to 3%.
These policies are proving attractive to cannabis companies like Lifestyle Delivery Systems (LDS.C) and Plus Products (PLUS.C) – which both have Adelanto facilities.
“The Adelanto facility will be used as one of our Southern California satellite facilities for goods being transported from our 196,000-square-foot vertically integrated, cannabis-focused facility in Modesto,” stated Jim Pakulis, CEO of TransCanna.
TransCanna is planning to acquire GoodFellas – and when that happens the company will transfer its revenue-generating distribution and manufacturing processes to Adelanto.
TransCanna also recently acquired SolDaze, which has launched of a Spicy Mango line of cannabis-infused snacks. TransCanna is in receipt of pre-orders for the new edibles line, with full shipments expected to begin in early July.
According to Zion Market Research, the global market for cannabis edibles was valued at nearly $2.4 billion in 2018. The market will grow at a compound annual growth rate of 25.4% between 2019 and 2025, reaching $11.6 billion.
A separate study from ArcView Market Research and BDS Analytics predicts North America’s edibles market to be valued at $4.1 billion in the next three years. That’s a four-fold increase compared with 2017.
Three weeks ago, TransCanna announced an L.O.I with Tres Ojos Naturals, to acquire the branding asset package, Soldaze, which produces cannabis-infused fruit snacks in California.
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. SKU Velocity is the speed at which your product is finding new retail locations.
Adelanto’s Mayor Stevevonna Evans said the city’s goal is to attract more cannabis businesses.
“I’m suggesting you consider lowering the tax rates on all categories in good will and good faith to allow operators a window to get on their feet,” the City Manager stated about Adelanto’s cannabis industry.
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.
“With the non-volatility manufacturing licence,” stated Pakulis , “We’ll be able to accommodate the production and packaging of pre-rolled cannabis products and other products of similar nature, then distribute them accordingly.”
Full Disclosure: TransCanna is an Equity Guru marketing client, and we own the stock.
For me, one of the main takeaways is the fact that TransCanna has their “4-pronged business model” already in place: Their “Procurement” pipeline has been primed by CEO Jim Pakulis and his extensive history within the industry. Allowing TCAN to leverage existing relationships with California’s farmers to “access biomass.”
As for “Branding & Design” – TCAN’s vets have been busy over the past several months cultivating premium California brands for inclusion in the TransCanna family.
Transportation and Distribution – while the company plans on having “5 strategic facilities throughout California,” TCAN has already successfully secured two key distribution points – one in Modesto, California, and the other in the City of Adelanto.
As Pakulis recently noted, “the purpose of the Adelanto facility is two-fold; first, it’ll be used as one of our southern California satellite facilities for goods being transported from our 196,000 square foot vertically integrated, cannabis focused facility in Modesto.
Second, with the non-volatility manufacturing license we’ll be able to accommodate the production and packaging of pre-rolled cannabis products and other products of similar nature, then distribute them accordingly.”
Exactly, Monterey – this company has its ducks lined up, though it is early days, and like all young fast-growing companies, their financials will be subjected to scrutiny. We’ll be here to break that down.