ManifestSeven’s CEO: Cannabis Industry Is Just Now Getting Interesting
December 12th, 2019
App, Exclusive, News, Top News
“Let not your heart be troubled,” is a famous passage from John 14:1 to find comfort in troubled times, a mantra that ManifestSeven CEO Sturges Karban finds applicable for the state of the cannabis market today. Karban recently took some time to sit down with CFN Media to discuss the cannabis industry, where he sees it heading and how ManifestSeven is ignoring the market noise and building what is effectively the Amazon of the cannabis space.
This is Normal
Every nascent market goes through volatility and cycles. Think back a couple decades to the tech boom, a time when most people didn’t even understand what the internet was, much less how it was going to reshape the world. And what happened? There were some violent swings before things ironed out. We got Google, PayPal, Apple and other tech juggernauts out of it.
Presently, cryptocurrency is doing the same thing as it goes through growing pains.
There is a decisive difference between those two and the cannabis space, though. The internet and crypto were things people had never heard of when those markets started emerging. People in virtually every corner of the planet know what cannabis is. It is a plant with proven demand worldwide for thousands of years.
Karban says he’s not afraid of machinations in the cannabis evolution – which he believes are normal market cycles as businesses, consumers and lawmakers figure out how to navigate the nascent market. In his view, cannabis stocks were experiencing rapid growth and frothiness in the public markets and a pullback was inevitable. That certainly has been the case since spring, with most so-called “pot stocks” seeing their valuations at least halved.
Cases in point: Canopy Growth Corp. (NYSE: CGC)(TSX: WEED), the biggest cannabis company in the world, saw its stock price gashed by 73.8% from the end of April to a low last month before making up a little ground. Peer Aurora Cannabis (NYSE: ACB)(TSX: ACB) suffered a similar fate, with shares jettisoning 77.2% from April to November.
Now, Karban believes we’re near the bottom of the cycle and ready for the next sustainable “hockey stick” move upward largely underpinned by fundamentals rather than mostly speculation.
The New Standard
Cannabis 2.0 is the colloquial term for the next generation of legal marijuana. Some may think it is about new product forms hitting shelves at dispensaries, and it is to a certain extent, but it is more about normalization of the industry. This means implementation of all the hallmarks of long-term, institutional-grade enterprises.
Simply, companies are no longer going to fly by with napkin drawings about their big plans in what is forecast to be a $66.3 billion market in the next five years.
Karban sees companies being measured by more traditional metrics in Cannabis 2.0 as “the right type of standards and protocols” become benchmarks of the industry. This means things like corporate governance, profitability, real asset bases, enhancing the balance sheet and professional and responsible management of risks and expenses becoming top priorities.
The next 12 months will be characterized by companies that demonstrate these qualities rising to the top, figures Karban. “The Googles, PayPals and Amazons of the [cannabis] world are starting to line up,” he said during the conversation.
Cannabis-related stocks may have suffered in 2019, but retail investors aren’t the least bit put off, according to a survey commissioned by ManifestSeven and conducted by global business advisory firm FTI Consulting. In the survey, 83% of American respondents viewed the 12-month outlook for the overall cannabis industry as “slightly” or “very” positive, as did 79% of Canadians surveyed.
Seeing the big picture, not the current blood in the streets, Karban knows that valuations normalizing will lure more institutional money off the sidelines to support the right kind of issuers. In turn, more professional investors will recognize the opportunity.
Capitalizing on Market Conditions
ManifestSeven is building an omni-channel platform for B2B and B2C cannabis commerce. Effectively, the platform will include distribution infrastructure and services for every channel in retail cannabis, including dispensaries, on-demand delivery, in-store pickup, e-commerce and e-commerce subscriptions.
As detailed by Karban, consumers are habituated to the dynamic of retailers having extensive reach into supply chains to get what they need. Using Banana Republic, a Gap (NYSE:GPS) company, as an example, Karban explained that people are accustomed to walking into a store and if the apparel they want isn’t in stock, it is addressed instantly by an associate with a few taps on an iPad to scan the back room, warehouses and all other locations across the country to see where the closest one is.
In that lane, ManifestSeven’s platform is an “order from anywhere, fulfill from anywhere” model that brings true value to the cannabis supply chain by seamlessly connecting businesses to businesses and businesses to consumers. The initial focus is in California where ManifestSeven now covers 80-85% of the state’s population from a service coverage perspective.
2019 has been a big year for the company. During the spring, a $22 million private placement was completed, providing expansion capital. ManifestSeven acquired six companies in the distribution and retail space over the past nine months. This included their first cannabis dispensary, located in Santa Ana, California, and the 1-800-CANNABIS asset that serves as a central component of the platform.
Right now, Karban says they’re in the midst of completing another private placement during which they are raising capital at a 2x valuation compared to the funding round earlier this year. The takeaway there is that while most companies have been languishing, there is no down round for ManifestSeven.
The company has four or five more acquisitions it is considering, according to Karban, and plans to become a public entity in the coming months. He didn’t come out and say as much, but ManifestSeven’s plan to enter the public domain certainly implies that Karban is steadfast in his contention that the cannabis market is about to begin a new upward cycle with quality companies winning the capital from retail and institutional investors.
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