In this edition of "Rising High," The Fly conducted an exclusive interview with Smoke Wallin, chairman and chief executive officer of Vertical Wellness, a vertically integrated consumer-focused health and wellness brand company. Here are some of the highlights:
CBD BRANDS: Vertical Wellness is a vertically integrated hemp-based CBD brand company with operations in California and Kentucky. The CEO said the company decided to implement a vertical integration strategy as the hemp and cannabis industries are so nascent. “It just became nationally legal on the hemp side since the end of 2018 and prior to 2014, there was nothing,” he said. “The ecosystem is still being built out so one reason we invested heavily in infrastructure was because of this factor.” Wallin said in this stage of industry development, a very important capability to have is being able to supply at scale high-quality ingredients from the cannabis plant, having the expertise in those ingredients and being able to formulate them into proprietary brands that can have unique functional abilities. “We grew 1800 acres last year which harvested 4M lbs. and then we’ve taken that 4M lbs., processed it at our own facility, created and extracted CBD and other cannabinoids and created proprietary formulas.” The CEO also noted that the company works with third-party co-packers who have GMP facilities that are set up to do scale. “it just gives us the seed-to-sale capability which I think is really important in the early stages,” he said.
COMPETITIVE EDGE: When asked about the company’s key differentiators, Wallin pointed to the fact that Vertical Wellness touches the plant all the way from the beginning to bringing products to market. The CEO also cited the effectiveness and fast-acting nature of the company’s formulations as well as the company’s branding. “Functional proprietary uniqueness combined with very clear and distinctive branding will set us apart with our portfolio of brands,” he said, adding that Vertical Wellness’ brands are not one size fits all. “They’re very targeted at specific parts of the market and we think that gives us a big advantage because we’re not a one trick pony.” Wallin noted the company has a portfolio of brands focused on different segments including pet care, skincare, beauty, lifestyle and beverages. Initial brands include kathy ireland Health & Wellness, Taos, Lap Dog, Par5, Halogenix, Wingra Farms, Neutrate, USMCC, and Hemp-Moji. “They’re not all under one umbrella, one brand, because that wouldn’t make sense,” he said. “It makes sense to have different offerings.”
DISTRESSED MODE: The coronavirus pandemic has caused many companies in the hemp and CBD industry to lose money and make layoffs, but Wallin noted the industry was in “distressed mode” even before the outbreak. “The first year of hemp being naturally legal, a lot of people jumped in and grew a lot of hemp and didn’t really have a plan,” he said. “When we got to harvest last October, there was a lot of distress in the industry. We recognized it, we made cuts and laid off about 50 people late last year just to make sure we could survive.” The CEO said by the time the pandemic hit, the company already had made tough decisions and was in lean mode, making Vertical Wellness uniquely prepared to help the investment community as they struggled with all the bankruptcies that took place. “The seven of the largest hemp companies that were processors, and who had raised over $400M in the past year or so, went bankrupt or out of business in the last 12 months,” he said. “What we did was we had invested heavily in our production facility in Kentucky to manage our own growth but we basically pivoted and we went through the investment banking community, made contact with some of the larger bankruptcies and offered our services to help the investors or help the creditors salvage value.” Wallin said that led the company to create it services business, which helps with strategic, financial, branding, sales and hemp processing solutions. “We process hemp for other people and this year we’ll process over 18M lbs. of hemp for third parties,” he said. “Besides our 4M lbs., we have another 18M lbs. that we’re processing for other people and that makes us probably the largest hemp processor in the country this year. It really just came out of the distressed industry but then with COVID, it just accelerated everything and if you were already in trouble, obviously it got worse.” Vertical Wellness, which ended up hiring back all of its employees and more, also raised $4.2M during the pandemic. “We became cash positive in the second quarter and have stayed that way,” Wallin said.
LEGALIZATION: When asked about the potential federal legalization of cannabis in the U.S., the CEO said he believes it is a question of not if, but when. “This is one of the few areas that there is bipartisan support to remove the prohibition,” he said. “I believe you’ll see gathering momentum to get rid of the prohibition of cannabis at the federal level after the election.” Wallin said he believes the timeline for legalization will depend on the makeup of Congress, but the bipartisan support and broad legalization of cannabis on a state level have set the path. “Even if you’re a conservative who is not necessarily in favor of this product, I think you recognize that the will of the people is that it become a legal product, that there are lots of medicinal benefits from it that are being discovered and that if you’re a states’ rights person, the states have spoken,” he said.
CHALLENGES: When asked about the biggest challenges facing the cannabis industry, the CEO noted the gray areas in regulation. “The FDA is certainly high up there in the list in permitting widespread rollout of lots of different form factors,” Wallin said, adding he believes the issue will resolve as more research on cannabis takes place. “The regulatory challenges are the biggest challenges right now because the uncertainty prevents some of the bigger retailers from jumping in with both feet,” he said. “They’re inching their way into it but they’ve taken a very conscious approach because of the uncertainty.” However, the CEO said it also creates an opportunity within the space. “The flip side of that is therein lies the opportunity because if it was clear and easy we might have a lot more of the big corporate CPG companies jumping in right away,” he said. “There’s an opportunity for entrepreneurial companies like Vertical Wellness to establish brands while there’s still uncertainty. It’s a two-edged sword.”
OPPORTUNITIES: As the cannabis space develops, Wallin said Vertical Wellness is excited about the initial launch of its brands as well as the ingestables segment of the industry. “We are really excited about beverages,” he said. “We’ve got several beverages that we’ve been working on, we have formulations, they taste great, and they’re very highly effective. We’re very much looking forward to launching those in the market because we think that’s a really nice form factor for people and we think there’s a big opportunity there.”
OTHER CANNABIS STOCKS: Other publicly-traded companies in the space include Akerna (KERN), Aleafia (ALEAF), Aphria (APHA), Aurora Cannabis (ACB), Auxly Cannabis (CBWTF), Biome Grow (BIOIF), CannTrust (CTST), Canopy Growth (CGC), Canopy Rivers (CNPOF), CordovaCann (LVRLF), Cresco Labs (CRLBF), Cronos Group (CRON), CV Sciences (CVSI), CURE Pharmaceutical (CURR), Delta 9 (VRNDF), Emerald Health (EMHTF), FluroTech (FLURF), General Cannabis (CANN), Greenlane (GNLN), Green Thumb Industries (GTBIF), GrowGeneration (GRWG), Harborside (HBORF), HEXO (HEXO), Hemp Inc. (HEMP), India Globalization Capital (IGC), Indiva (NDVAF), Indus Holdings (INDXF), Innovative Industrial Properties (IIPR), Khiron Life Sciences (KHRNF), Liberty Health Sciences (LHSIF), MediPharm Labs (MEDIF), MedMen (MMNFF), Mjardin (MJARF), Neptune Wellness (NEPT), Omnicanna (ENDO), Organigram (OGI), Planet 13 (PLNHF), Sproutly (SRUTF), Stem Holdings (STMH), Sunniva (SNNVF), Supreme Cannabis (SPRWF), Valens (VLNCF), Tetra Bio-Pharma (TBPMF), Tilray (TLRY), Trulieve (TCNNF), Village Farms (VFF), Vireo Health (VREOF), Wayland Group (MRRCF), WeedMD (WDDMF), Wildflower Brands (WLDFF), YSS Corp. (YSSCF), Zynerba (ZYNE) and 4Front Ventures (FFNTF).
APHA
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Aurora Cannabis
-0.1 (-2.07%)
CV Sciences
+ (+0.00%)
CannTrust
+ (+0.00%)
Canopy Growth
+0.235 (+1.20%)
Cronos Group
+0.055 (+0.93%)
Trees Corporation
+ (+0.00%)
IGC Pharma
-0.025 (-2.05%)
Tilray
-0.11 (-1.71%)
Trulieve Cannabis
+ (+0.00%)
ZYNE
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