In this edition of "Rising High," The Fly conducted an exclusive interview with Michael Mills, chief executive officer, and Trip Hoffman, chief operating officer of Body and Mind Inc. (BMMJ), a multi-state operator investing in cannabis cultivation, production and retail. Here are some highlights:
OPERATIONS-FOCUSED: Body and Mind is a multi-state operator with operations in Nevada, California, Arkansas and Ohio and products including dried flower, edibles, oils and extracts. “We got our start roughly six years ago in Nevada,” Mills said. “We actually won one of the first medical cannabis cultivation licenses and also a medical production license.” The CEO said the market tends to be pretty small as one of the first licensees in a medical state. “We came out very quickly with a wide range of products with what we felt was a strong brand in the Body and Mind name,” he said. “We also started looking at new states to expand into.” The company now has a branded dispensary and a production facility near completion in Ohio. In Arkansas, Body and Mind operates a branded dispensary with in-state partner Comprehensive Care Group and has commenced cultivation operations. The company also expanded to California a couple of years ago through an acquisition, Mills said, and now operates two ShowGrow dispensaries and offers oils, edibles and extracts in the state. “Our focus has been winning licenses at the application level, developing them efficiently as fast as we can and getting them to cash flow positive as quickly as possible,” he said. “That generally is one of the best ways to build shareholder value. We really envision repeating our success again. We have applications in states that we are in as well as new states.”
COMPETITIVE EDGE: When asked about the company’s key differentiators, Hoffman pointed to the company’s segment of the space as well as its efficient operations. “We focus on a portion of the market that’s neither the high-end connoisseur nor just the newbies, our target is the healthy lifestyle market,” he said. “There are other players in our same section of the industry but that’s where we fit squarely.” The COO added that Body and Mind runs its operations with “extreme efficiency” giving the company an edge over competitors. “We run our cultivation with what we call a perpetual harvest,” he said. “We’re very dialed in, we harvest the same amount of cannabis every week and all the way through our manufacturing schedules through our dispensaries, we use a just-in-time inventory management system so we’re not purchasing too much inventory.” Hoffman said the company also works hard on keeping labor costs low and running operations lean and mean. “One of the things that makes us different from most of our public peers is that Mike and I spent a lot of time just on our operations and opportunities and not so much time on promotion,” he said. “The idea being that we want to make sure that we are a health company first.”
ARKANSAS CULTIVATION: In early April, Body and Mind announced that along with Comprehensive Care Group, it had commenced cultivation operations in West Memphis, Arkansas. “In Arkansas, we we’re allowed to have a small cultivation operation as part of our dispensary license,” Hoffman said, noting there is a very limited number of cultivators in the state. “In fact, there are eight licenses of which only five them are actually producing cannabis for wholesale right now,” he said. “There is a shortage of supply and that’s evidenced by the price.” The wholesale prices in Arkansas are the highest prices of any state that Body and Mind operates in, the COO said, and since the company has the ability to cultivate its own wholesale cannabis, it will do so and sell it in store. “We can increase the margins that we have because we want it to pay the high wholesale prices to other vendors and also we’ll be using it to do some production so we can create some other Body and Mind products,” he said. Hoffman added the company expects Arkansas to become an adult-use market in the long-term. “When it does we expect the demand to kick up even farther, which will have an even stronger influence on the shortage of the wholesale flower,” he said. “We want to be prepared to be able to supply ourselves with inventory.”
SAFE BANKING: The U.S. House of Representatives passed the Secure and Fair Enforcement Banking Act, which would give the industry access to banking services, on April 19. The vote marks the fourth time the Act has passed the House. “Hopefully this is the last time it passes the House and it goes through the Senate,” Mills said. “There seems to be some debate as whether that is going to happen or not.” The CEO said acceleration of cannabis legalization and cannabis normalization in the last year has set the stage for government action. “When you get that kind of sea change in the attitude of the general population, you got to think that at a point in time there’s going to be follow-through by the government,” he said. “If SAFE Banking gets through the Senate, that would be fantastic. It would make the industry safer and allow cannabis businesses to run more like other businesses.”
LEGALIZATION: When asked about the potential federal legalization of cannabis in the U.S., Mills said that the federal administration has certainly been more cannabis friendly than the prior administrations. “I think everything from here looks upwards,” he said. “We’ll get a better indication as we see what happens with SAFE Banking coming to the Senate or further bills that have certainly been floated about descheduling or decriminalization.” The CEO said there has been a lot more positivity surrounding the potential of action by the Biden administration, however it may take time. “The administration still has very significant challenges around pulling the people and economy out of COVID so perhaps it doesn’t go to the front of their docket,” he said. The discussion around SAFE Banking is linear and very easy to understand from a safety standpoint, Mills added, allowing people to get on board with the legislation. “That conversation around descheduling and legalization is a much larger, robust conversation that’s going to potentially take quite a while to come to fruition,” he said. “I would hope that we would see some sort of Safe Banking later this year. I think the descheduling or decriminalization could be quite a while away.”
DELIVERY METHODS: As technology advances and delivery systems for cannabinoids become more diverse, Mills said the industry is so early in the game with respect to innovation. “Really if you go back and look 10 years ago, vaping was almost unheard of,” he said. “Now you’re seeing things like nanotechnology and edibles. I think we’ll continue to see innovation as we move forward, I don’t think we’re anywhere near finished.” Hoffman added that beverages have become a topic of conversation from time to time at Body and Mind. “We do believe that beverages will have a major part of the footprint in the future,” he said. “How far in the future, that is yet to be seen but clearly people are exploring easier, more socially acceptable methods of ingesting.” The COO said he does believe that research will come out on nanoencapsulated particles, fast on-set distillate and other innovations that will contribute to new products in the future.
CORONAVIRUS: The coronavirus pandemic has impacted many companies globally in the cannabis space and Hoffman said it helped the industry immensely from a very high level. “We had a record-breaking year last year of sales almost across every state,” he said. “Part of that was that people were out of work, they were home and they were stressed.” However, from state-to-state and from operation-to-operation, the pandemic presented a large obstacle, the COO said. “It was an incredibly huge challenge to keep our staff together to manage their stress levels, their safety levels and their concerns,” he said. “It was a year like no other that we had to learn how to operate through and we grew as a team and as a company. We learned some things about our operations how to make them better in times of duress.” Mills noted that the outbreak also resulted in regulatory shifts citing an example of a state that allowed curbside pickup after previously prohibiting it. “The state actually did a really good job moving that change forward through their regulatory system,” he said. “We do see innovation on the regulatory levels.” The CEO added that he expects consumers to want to return to stores as the pandemic retreats. “People do want to shop, they want to talk to budtenders, they want to understand the new products and they want that education,” he said. “I do see people coming back into stores as they get more comfortable.”
CHALLENGES: When asked about the biggest challenges facing the industry, Mills pointed to the capital side of the industry. “Banking, taxes and access to capital markets would be the three biggest challenges,” he said. “Probably the biggest challenge would be access to capital markets.” The regulations surrounding the industry can also be quite a hurdle, Hoffman said. “The regulatory landscape we have to operate under is quite suppressing and overbearing sometimes,” he said. “It’s part of the industry, it’s part of what we signed up for but it can be challenging to business growth.”
OPPORTUNITIES: As the cannabis space develops, Mills said he expects operators with experience, consistent performance and regulatory knowledge to succeed. “We see huge opportunities for companies who have experience in the industry, have demonstrated that they’re strong operators and demonstrated that they understand the regulations,” he said. “We expect them to not only to be successful in the states that they are in but also to win licenses going forward.” The CEO said he believes the U.S. cannabis space is in “very early innings” and there will be a lot of opportunity moving forward. “We’ve really transitioned incredibly over the last ten years from a lot of people thinking that cannabis was bad for you and dangerous to a lot of people understanding that it can help them in their life,” he said. “As more and more people come to this realization that group of consumers and potential cannabis buyers will keep on growing, growing, growing.”
OTHER CANNABIS STOCKS: Other publicly-traded companies in the space include Acreage (ACRHF), Akerna (KERN), Aleafia (ALEAF), Aphria (APHA), Aurora Cannabis (ACB), Auxly Cannabis (CBWTF), CannTrust (CTST), Canopy Growth (CGC), Canopy Rivers (CNPOF), Clever Leaves (CLVR), CordovaCann (LVRLF), Cresco Labs (CRLBF), Cronos Group (CRON), CV Sciences (CVSI), CURE Pharmaceutical (CURR), Delta 9 (VRNDF), Emerald Health (EMHTF), Fire & Flower (FFLWF), FluroTech (FLURF), General Cannabis (CANN), Greenlane (GNLN), Green Thumb Industries (GTBIF), GrowGeneration (GRWG), Harborside (HBORF), Hemp (HEMP), HempFusion (CBDHF), HEXO (HEXO), High Tide (HITIF), IM Cannabis (IMC), India Globalization Capital (IGC), Indiva (NDVAF), Inner Spirit (INSHF), Innovative Industrial Properties (IIPR), Khiron Life Sciences (KHRNF), Liberty Health Sciences (LHSIF), Lowell Farms (LOWLF), MediPharm Labs (MEDIF), MedMen Enterprises (MMNFF), MJardin Group (MJARF), Neptune Wellness (NEPT), Omnicanna (ENDO), Organigram (OGI), Planet 13 (PLNHF), Skye Biosciences (SKYE), Sproutly (SRUTF), Stem Holdings (STMH), Sunniva (SNNVF), Supreme Cannabis (SPRWF), Valens (VLNCF), TerrAscend (TRSSF), Tetra Bio-Pharma (TBPMF), Tilray (TLRY), Trulieve (TCNNF), Village Farms (VFF), Vireo Health (VREOF), WeedMD (WDDMF), Wildflower Brands (WLDFF), YSS Corp. (YSSCF), Zynerba (ZYNE) and 4Front Ventures (FFNTF).
ZYNE
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APHA
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Body and Mind
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