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Golden Leaf Holdings Inc. CEO Don Robinson Talks Cannabis Resin and Recreational Marijuana in Oregon

by James West

Golden Leaf Holdings Inc. (CNSX:GLH) CEO Don Robinson talks about why his company’s strategy of operating in Oregon and other states where marijuana is approved for sale on a recreational basis is going to deliver big returns to investors. He expects his company to be selling over $3 million per month of cannabis resin by next year, with margins well above seventy percent. Compare that performance to companies like Canopy Growth Inc. (TSX.V:CGC) (OTCMKTS:TWMJF), Bedrocan Cannabis Corp (TSX.V:BED) (OTCMKTS:BNRDF), OrganiGram Holdings Inc. (TSX.V:OGI) (OTCMKTS:OGRMF), T-Bird Pharma Inc. (TSX.V:TPI) or Mettrum Health Corp (TSX.V:MT) .
Midas-Letter-financial-radio-podcast-thumb[four_fifth_last padding=”0 0 0 20px”]Listen to the interview with Don Robinson:

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Full Transcript of Interview

James West:    Hey Don, thanks for joining us today.

Don Robinson:  Happy to do so.

James West:    Don, why don’t you give us an overview of the value proposition for investors in Golden Leaf Holdings?

Don Robinson:  We think it’s a very differentiated story, starting with, we have a very different business model than the other marijuana companies currently available, particularly the LPs in Canada. We are a manufacturing business. We extract oils, refine oils, and then make our oils available in a wide variety of delivery systems, including edibles, versus a marijuana growing business, which the LPs in Canada are.

James West:    So you don’t grow marijuana, but you extract cannabis resins from marijuana, and you are a Canadian listed company?

Don Robinson:  With operations in the US, where the market is much, much larger. So for example, there’s 25,000 patients in Canada, and roughly 25 licensed producers competing for them. In Oregon, now that we’ve gone legal recreationally, we have almost 500,000 consumers, which is 25 times the size of the Canadian market, and we went recreationally legal as of October 1st, and the market’s gone from roughly 140 million to close to 800 million. Is that occurring? We have one dispensary, and our customer count used to be about 100 a day, pre-recreational; it’s now 400 a day. So we’re seeing there’s a lot going on right now in Oregon, because the recreational market has come on.

We also think we’re quite a differentiated play. Our approach, we think, is quite different. Our approach is about a couple of things: one, we think there are two factors that are critical for success, we think, in the industry: the first is the marriage between industry experts – this industry’s been around for a long time – combined with corporate, gray haired, adult supervision. That marriage of those two components, we think, is critical, and the other thing is, ready access to capital.

What we’re really trying to do is, cannabis is going to be a very big industry; 58 percent of Americans think it should be legalized, that’s up from30 percent 2002. A big change. 83 percent think doctors should be prescribing it. And you know, if you talk to people in Washington, DC, in the know, they see Federal de-regulation in as short a time period as three, but certainly within, five years. That’s forward-looking; that’s not a prediction, I’m just suggesting that’s kind of the way it’s going.

There’s 23 states in some form of cannabis legalization.

James West:    So you’re catering to both recreational and medical users, exclusively in Oregon, exclusively extracts in the form of resins, and you’re selling through a single dispensary location?

Don Robinson:  And our products are sold, there’s 250 or so dispensaries in Oregon and we have a sales force of 10 people who sell our products to those dispensaries. We do grow and intend to grow marijuana, but it is only so we are self-sufficient on our raw material trim, and we want to do that, because we want to be organic. We don’t want to use pesticides, and we don’t want to pay – right now, the trim market in Oregon is about $400/lb, and by being self-sufficient, it’s much less expensive, then our margins go from 45 to close to 80 percent. That’s forward-looking, but that’s what’s in the projection. And we have a company in Israel; the Israelis are everything best practice about marijuana, globally, they’re world leaders, so we’re importing best practice in terms of greenhouse growing, breeding, and greenhouse operation.

James West:    Great. So how much marijuana resin do you sell currently?

Don Robinson:  Our revenue, the history of it, in September ’14, 150,000 a month. By April ’15, it was over $1 million a month in revenue, and we’ve been over a million since April, so for the last six months. We’ve been capacity constrained, but we’re doubling the number of the machines we have between now and the end of the year, so we will be in an over-capacity situation, we hope, but it’s difficult, because it’s hard to understand what the demand really is. So we can sell everything we can make, so we’re adding machines until we’re over-capacity.

James West:    So you do a million a month now, and you’re going to be over $3 million a month by the time you get up to capacity by adding new extracting equipment?

Don Robinson:  More. At the end of the year, we’ll have a run rate of, if we can sell everything we can make, of close to 3 million a month.

James West:    So my understanding is, you currently sell all that you can possibly make.

Don Robinson:  That’s right, yeah.

James West:    And you sell it all within the state of Oregon?

Don Robinson:  Yes.

James West:    Okay, do you have any plans to expand into the other states?

Don Robinson:  Well, there’s a point of tension within the business. Our goal has always been to perfect our business model in the state of Oregon and, at the same time, look for other states. We’re currently in discussions, we have a memo of understanding, a potential partner in Washington, and Washington, in terms of the market, is twice as big as Oregon. Washington is completely legalized as well. So if you put Washington and Oregon together, you’ve got a market of about 2.5 billion, with almost 1.4 million consumers. And we’re looking at other jurisdictions as well.

James West:    Okay. So how much capital markets equity have you raised to date, and how much more are you going to need to get to your 3 million per month in the next 12-18 months?

Don Robinson:  We raised first round 5 million, second round 12 million. So that’s how much we’ve raised. We don’t see ourselves having to raise any more money until end of first quarter, early second quarter next year, and at that stage, I think we’ll be trying to, based on proven results, we’ll be trying to raise quite a lot of capital, so that we can – we’re getting streamlined with opportunities every day, some of them good, some of them bad, but we’d like to be in a position where we have the capital to be able to capitalize on the opportunities as they come forward.

James West:    Sure. So how many competitors do you have in the state of Oregon, also producing cannabis resin?

Don Robinson:  Three, four? They’re not of our size. We have first mover advantage, and we’re going to try to hang onto it. They don’t have the same – what we’re doing is importing business best practice from other industries and applying it to cannabis. Our competitors don’t, at this stage, have that approach.

James West:    So you have superiorities in terms of methodology, management, access to capital, first mover advantage…so you don’t really, at this point, consider your competitors a serious threat in terms of your current market share?

Don Robinson:  No. we’re very respectful of them, and applaud them for being in the industry with us, and we’re always paranoid to make sure that we do stay in that first mover advantage position, but at the moment, we don’t see a threat in them.

James West:    Okay. So competitors not really a threat, you’re planning to grow your revenue from $1 million to $3 million per month in a best case scenario, you’re going to improve your margins dramatically from 45 percent as a result of growing your own marijuana. How soon till you start producing your own marijuana?

Don Robinson:  We have a harvest on right now of close to 400 plants. Our long term plan calls for the harvesting of 2,000 plants a month, and we would be growing in one hectare sized greenhouses because we’re importing that technology from Israel.

James West:    Sure. So then is Golden Leaf’s plan to stay in the US market, or do you envision coming into the Canadian medical marijuana market at any point?

Don Robinson:  We’re certainly very interested in Canada, given we’ve got a lot of Canadian investors, and we are a Canadian company. At this stage, we think the Canadian market is in stall, and it needs to become bigger for it to become interesting, and for that to happen, there needs to be recreational. You need to do away with the two citizens of medicinal, and end up with one, and also legalize recreational use. At that point, Canada would be of great interest to me.

James West:    Yeah sure, why bother with Canada when your market in the United States is 10 times the size.

Don Robinson:  James, you said that, I didn’t say that. But again, I did give you the numbers.

James West:    Sure, and everybody understands that this is a forward-looking statement kind of environment. So then Don, let me ask you, what are the big bottlenecks between you getting from $1 million a month to over $3 million a month in revenue? I mean, is there any serious threat of a major American corporation with deeper pockets and bigger reach coming in and setting up shop next to you guys to try to muscle in on the revenue territory that you guys have carved out for yourself at this point? Or do you see that as not too much of a threat at this point?

Don Robinson:  There isn’t another current cannabis company that has our business model, that we imagine would be doing that from another state. We do know, I mean, I think – how we see the industry evolving is that there will be the development of state-based businesses. You can’t cross state lines. Like us, we’ll be able to export our corporate expertise in partnership with our local partners, but it’s really when Federal deregulation comes, that’s when we’ll see the massive change. At that point, we could either be a consolidator, or be consolidated. Don’t know, and the Big Tobacco, Big Food, Big Soft Drink, Big Pharma, and Big Alcohol all have their eyes on this space. Why wouldn’t you, it’s the end of Prohibition all over again. That’s how we kind of see the industry playing out: build a really strong business right now, on a state by state basis, and then when Federal deregulation comes, there will be massive change.

James West:    Right. Okay, so are you guys sort of looking at the landscape and anticipating positioning yourselves for more states becoming recreational? Or have all the states that are going to go recreational, already become recreational?

Don Robinson:  No, no, no. so there’s four states recreationally and medicinally legal right now. There are 23 states in some form of deregulation, and there are 9 states that have it on the ballot in 2016. So it’s coming at us like a freight train. It just keeps stopping – I mean, keeps, every day. So around us, it’ll be on the ballot in California; Colorado is legal, Arizona is talking about it, and Nevada is in the beginnings of legalizing. Michigan.

James West:    Michigan, too. Okay. So you guys are looking at a run rate of $12 million a year, 45 percent margin, call it 5.4 million EBITDA roughly, for other expenses, and so, is that –

Don Robinson:  We close out the year higher than that. Our sales at this point are expected to close the year at close to 16 million.

James West:    16 million, wow, that’s impressive.

Don Robinson:  We’re going to have a very strong fourth quarter, as we add capacity, and as we sell. You know, we have a harvest of 400 plants that we’ve grown ourselves.

James West:    Right. So your cost of those plants is probably almost negligible.

Don Robinson:  Yeah.

James West:    Great. So your margins are going to go up, your production is going to go up – sounds like a great story, Don. We’re going to leave it there for now and come back to you in a couple quarters’ time, and see how you’re making out. I’d like to thank you so much for joining us.

Don Robinson:  Thank you, James. Anytime.

 

 

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