WKULF - How to assemble a multinational vertically integrated multi-brand cannabis conglomerate with Weekend Unlimited CEO Paul Chu
Depending on how closely you follow cannabis industry news feeds you may or may not have heard of a little-known Canadian contender by the name Weekend Unlimited Inc. (CSE:POT). But if you follow along even a little, you probably made aware of the company last week when news broke about it beating out a pack of 40 hopefuls to win the coveted Canadian Stock Exchange ticker symbol, POT, via lottery. The news made headlines not only among cannabis industry journals but was also covered in numerous business journals and even some mainstream publications that follow developments in the fast-evolving pot business.
The POT ticker came up for grabs last year when Canadian fertilizer company Potash merged with Agrium to form Nutrien which trades under ticker NTR. The interest in POT among Canadian cannabis companies was so high; the Canadian Stock Exchange decided to hold its first-ever random lottery to decide which company would take home the title.
“We didn’t see it coming,” Paul Chu, the company’s president, and CEO told Pot Network via phone, “and so that even added more excitement.” Chu continued, “A lot of things have already changed from just having that exposure. It also brought a layer of excitement for the industry. I think, all of a sudden, people said, ‘Oh, you know, a little guy can be discovered too,’ I also think that because the Canadian Stock Exchange was smart for giving it away as a drawing or a lottery. I think it garnered so much more attention, in a positive way, for the exchanges.”
The news of winning the coveted ticker resulted in an instant 60 percent bump Weekend Unlimited’s stock price. It also resulted in unfamiliar cannabis investors taking a closer peek at the company and finding there’s more to POT than just a pretty new ticker. There’s some substance there.
One financial reporter who saw some value in the company recently was Jim Bloom, a contributor at InsiderFinancial.com. Bloom called Weekend Unlimited Inc. “a fundamentally attractive investment.” According to Bloom, pullback from record highs “might as well have presented a perfect opportunity to buy the stock at a discount, as it looks set to continue powering higher.”
Last year the stock price reached record highs of $0.22. By the time Bloom submitted his report, the stock was back down to the $0.13 level. As of Feb 22, it’s hovering just over ten cents a share. Is there value there? Weekend Unlimited’s recently anointed CEO Paul Chu is quite confident that there is.
“I look at a few variables when it comes to how the market values companies,” Chu said. “It changes all the time, whether you look at things like a price/earnings ratio or just your topline revenue against your EBITDA. And if we look at our comparable peers in this industry — whether it’s Origin House, 1933, Dixie Brands, or Plus — most of these companies are in upwards of $200 million of market cap and their EBITDA is relatively high, anywhere from 15 to 18x. Based on our 2020 EBITDA numbers, we’re probably looking at an undervalue of at least 4x over what the market is calling for. So we know there’s an upside.”
[embedded content]Weekend Unlimited wins the 'POT' ticker
Paul Chu takes the helm
Back in December, Weekend Unlimited announced Paul Chu’s appointment to the role of President and CEO.
Over the past quarter century, after attending the University of Southern California Marshall School of Business, Chu has had his hands in an array of ventures which make him well-suited for helming a vertically-integrated multinational cannabis operation. Industries in which Chu has dabbled and dominated include technology, food and beverage, energy, telecommunications, hospitality, and real estate.
In the CBD space, Chu co-founded HEY MARY, a unique, AI-driven platform for in-home personal cannabis dosing and dispensing. He also co-founded Canna Candys which was recently acquired by Weekend Unlimited. He is also co-founder of medical cannabis consultants High Desert Group and Boom Energy NYC.
Before getting into cannabis, Chu had his fair share of success in the beverage and energy drink sector. As president of IDV, makers of the well-known Hansen’s natural soda line, Chu developed Monster energy beverages and is credited for spurring the freshly squeezed juice and caffeinated beverage movement in the Northeast, successfully placing products into SYSCO Foods, 7-Eleven and New York City’s Gourmet Markets.
As if that’s not skillset enough, Chu has held the titles of Managing Director of Johnny Rockets NYC, Chairman and CEO, iSWIMBAND, co-founder, Mobile123 and VIAONE Technologies, co-Founder and co-CEO, Urban Wireless, and also Vice President of Regal China Cruises. Chu also co-developed the first prepaid telecom platform which generated over $750M within four years of inception thanks to the placement of products into big-box retailers including Walmart, Toys R Us, and Staples.
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Throughout 2018, Chu worked with Weekend’s founder and former President/CEO Cody Corrubia in the acquisition of Canna Candys. “It became clear,” says Weekend Unlimited’s Corporate Director Kevin Ernst, “that [Chu] brings the leadership and experience we need to take Weekend Unlimited to the next level.”
The brand aggregation strategy
According to Chu, to reach that upside that he mentioned, the company needs to “get products, products, products out, get into the right distribution, and then the management team will let the market dictate where we can go.”
In order to “get products, products, products out,” the company has been executing a strategy of aggregating and scaling small to medium brands, primarily in the categories of flower, extracts and edibles, including both CBD and THC product lines, in a vertically integrated strategy that includes cultivation, extraction, production, distribution, and retail sales on a multinational level.
Weekend Unlimited enjoyed a year of steady growth and expansion over the course of 2018. The company acquired or announced the intent to acquire, production operations, retail outlets, and consumer brands in Jamaica, Washington State, Alberta, and British Columbia.
For example, the roots for Weekend Unlimited’s Orchard Heights Growers operation were put down in the commercial fruit tree industry. The facility, situated on seven acres near the Columbia River in Wenatchee, Washington, is focused on indoor cultivation and processing and features a combination of mixed light greenhouses along with a processing and extraction facility.
Phase One Development includes a state-of-the-art optimized-efficiency cannabis greenhouse with full climate controls, an advanced agriculture tissue culture robotics system, and an industrial extraction system.
Upon its completion, the Wenatchee facility will also house a nursery and processing and distribution centers with a concentrate lab for manufacturing infused and vape products.
In January Orchard Heights signed an LOI to provide processing and distribution facilities to the Boggy Boon brand, with an option to acquire its maker Seven Hills. Seven Hills, which operates a 28,000-square feet cultivation facility located nearby in Wenatchee, expects to double its production as a result of the alliance.
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According to Chu, Boggy Boon is ranked in the top 5 percent of all cannabis brands in Washington State with more than 130 retail accounts. In the first month of 2019, Boggy Boon was already on pace to achieve its largest retail sales month on record. And within a week of signing the LOI, Orchard Heights was securing orders in the hundreds of thousands of units.
Snoop Dogg played a Weekend Unlimited party in NYC earlier this year.
Expanding the branding plan
Back in mid-October of 2018, Weekend Unlimited announced the acquisition of British Columbia-based Northern Lights Organics. The West Coast operation takes up 600 acres of farmland in Fort St. James and is poised to become one of the largest organic hemp and CBD producers in Canada.
The plan there is to dedicate three hundred outdoor acres to growing organic hemp for CBD extraction, plus another 68,000-square-foot of indoor cannabis cultivation. The Northern Lights Organics campus will include vegetative, clone and genetics rooms and an extraction facility for the production of hemp CBD oils and concentrates. Furthermore, the company has submitted an application under the Canadian Cannabis Act for an indoor hybrid cannabis facility.
Northern Lights Supply, the Edmonton, Canada retailer in which Weekend Unlimited has acquired a 49 percent stake, is the first retail cannabis shop servicing the Edmonton International Airport, Canada’s largest oilfield industrial park, and the cities of Leduc and Beaumont.
The Northern Lights shopping experience is being designed to take advantage of Canada’s upcoming edible and infused cannabis products market coming in the fall of 2019. At 6,500 square feet of retail space, the Edmonton location is one of the largest approved Cannabis retailers in Alberta. The shop is one of ten stores in Alberta to be awarded a retail license.
On Feb. 13, 2019, Weekend Unlimited announced that it had completed an arms-length acquisition of Jamaica-based R&D Pharma, owners of one of only three Tier-3 cultivator licenses in the country. R&D focuses on medical tourism in Jamaica and operates an impressive 98-acre greenhouse with plans in the works that will double its size.
“Jamaica is one of those really beautiful secrets that we have,” says Chu. “We have a vertical there with a cultivation license, extraction, retail, and even export rights which is a very hard thing to get here in the States or even in Canada. As legalization takes hold in the European Union, exports from Jamaica will grow in importance, as EU countries will never be able to produce enough to satisfy their consumers.”
“But our biggest takeaway in Jamaica that we found,” says Chu, “is our cost per gram produced is probably the cheapest in the world. We came around 6 cents per outdoor gram. Even if we say that’s an anomaly and move it to 10 cents, it’s still a very, very low cost. And if we can do that as an extraction business and export, that’s a very big strategic win if we’re able to maintain that kind of cost.”
The operation itself could become a tourist attraction. A short tour bus ride from the cruise ship terminals in Ocho Rios is the Ganja Café, an R&D-owned brand that Chu hopes will develop into a multi-national brand – “the Starbucks of marijuana.”
“We’re developing a ‘pot tour’ for tourists in Jamaica,” says Chu. “We will have an on-site consumption lounge, a café with a dedicated menu just for munchies, a place to hang, listen to music, and enjoy each other’s company. It’s going to be a very international tourism type of play because in Jamaica there are more tourists than there are residents.”
Weekend Unlimited also recently completed the acquisition of Verve Beverage Company, a maker of both CBD and non-CBD beverages, with over $236 million in historical sales.
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The acquisition of Verve allows Weekend Unlimited to advance its plans to build cannabinoid-infused beverage brands and enhance its presence in the highly lucrative market, which is predicted to outpace the market for cannabis flower vastly. The functional beverage market is one of the highest growth categories in the beverage industry. And CBD-infused beverages alone are expected to become a $600 million market in the US by 2022.
Verve is in the process of introducing new brands such as Champ Energy which is already the official energy drink of the NHL’s San Jose Sharks, and there are plans to launch additional CBD-infused products.
Weekend Unlimited hopes the addition of Verve will help the company to expand both its distribution reach and product offerings – THC by state-by-state and CBD across the country.
Custom glass maker Jerome Baker Designs is another lifestyle brand which was acquired by Weekend Unlimited with the intention of extending its reach into the retail cannabis market. The company has offices in Las Vegas, New York, and Maui.
Aside from being the creators of the 23-foot tall “Bongzilla,” the world’s largest bong, currently on display at the Cannabition Cannabis Museum in Las Vegas, the company’s custom glass pipes have led to three High Times Cannabis Cup wins.
Weekend Unlimited intends to launch a line of Jerome Baker-branded CBD products, including an infused water bottle in the trademarked Jerome Baker bong design.
The branding experience
I asked Paul Chu about the challenges that come with brand-building in a world where a patchwork of strict local, state, and federal regulations prohibit certain forms of marketing and advertising and where social sites such as Facebook and Youtube are liable to tear down your wall at any moment.
According to Chu, a central piece of the company’s core strategy is to raise the profile of its brands by producing cannabis-themed experiences and events. In that sense, Weekend Unlimited, itself, is a lifestyle brand, according to Chu.
“It is tricky,” said Chu of advertising adult use cannabis brands. “One area where we’re differentiating ourselves is our Weekend Live component. Whether it’s brand influencers or ambassadors, we want to create excitement around events.”
For example, said Chu, “we did something recently in New York City where Snoop Dogg was our DJ. We dedicated that party to really bring out and accentuate that New York is going to legalize recreational use under Governor Cuomo. We didn’t anticipate the level of media attention and social media attention.”
Chu believes that Weekend Live’s events and promotion strategy is not only a viable alternative to traditional marketing; it’s a lot more fun. “We actually have a great deal of fun doing it,” says Chu. “It’s very authentic in the sense that we are in alignment with the artists as well as the individuals that follow them. So we’ll continue to explore the Weekend Live strategy as the extension of brand promotion rather than just advertising.”
THC vs. CBD business models
Weekend Unlimited says its business model is to focus on two separate business operations. “One is THC in legalized states in the categories of flower, concentrate, edibles, and topicals. The other is CBD with a much wider reach.”
Chu believes that CBD will not only have a wider reach but a larger market. “Although all of the statistics, research, and all the investment houses are coming up with numbers like CBD is going to hit $20 billion in 10 years versus $85 billion for the THC side in 10 years, I think it’s the other way around. In my opinion, if anything, it may be actually $180 billion on the hemp CBD side and maybe $80 billion for THC.”
Marijuana is also much harder to scale, according to Chu, “just because you have a whole different side of regulations and protocol, track and trace. And distribution channels don’t have the same ubiquitous reach. So I think it’s harder to do THC than to do CBD. However, they both require similar operating know-how, and both borrow from each other.”
“We obviously won’t be able to sell THC in the same store or the same channel that we sell CBD,” Chu continued. “However, our Weekend brand is going to be inherent in our beverage products, our edibles products, and all the CBD products whether it’s topicals or concentrates. That, eventually, will bring additional brand recognition. Because we have a product line or a box that is THC-driven, that brand recognition may give us an easier entrance into CBD.” And vice versa.