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Ionic Brands (CSE: IONC) CEO John Gorst on Bringing a Premium Cannabis Brand to Four of the Largest Markets in the US

August 5, 2019

Gerardo Del Real: This is Gerardo Del Real with Small Cap Stock Digest. Joining me today is the Chairman and CEO of Ionic Brands (CSE: IONC), Mr. John Gorst. John, how are you this afternoon?

John Gorst: Good, Gerardo. How are you?

Gerardo Del Real: I'm well, thank you very much for asking. I want to talk about the flurry of activity that frankly you've had since you went public, including the most recent news with the cannabis-infused edibles launch in Illinois dispensaries. That's a big deal. That just happened. But before we get into that, I'd love for you to provide a brief overview of Ionic, the markets you work in, what you're looking to do, and then let's talk about your background a bit, if that's all right.

John Gorst: Sure. So I'll just start with my background and get that out of the way. I spent 29 years in the technology sector. I started seven companies, successfully exited four of those operations, two of them through private equity, one through a strategic sale to a partner, and then one to a private partner. So I have a lot of success in building companies, organizations, bringing them to fruition and to a final exit.

I got involved in the cannabis space about seven years ago. My son approached me, he's actually the one, him and a friend of his, that started Ionic about seven years ago. I was the initial investor in the company and we started in the grow side of the business. Didn't do too well at that. The boys, as I call them, came back to me and said, "Hey look, our green thumbs aren't so green."

Gerardo Del Real: They're brown.

John Gorst: Yeah, they're brown. And I said, "Okay, so what do we do next?" And they came back to me a couple weeks later and they pitched me on vape. I bought a small extractor. They came back to me in about 45 days and they had sold 7,000 cartridges in the medical market in the state of Washington. That obviously got my attention. And subsequent to that, the rest is history. We're now operating in four markets. Four of the top five markets in the country, so Washington, Oregon, California, Nevada.

We are a premium luxury cannabis product. That has been our brand strategy from day one, to establish a premium brand that appealed to the soccer moms of the world, the white collar workers of the world, something that was discreet, that is a lifestyle brand, something that can be nicely fitted into your daily activities.

Our brand does not represent couch lock or being stoned out of your mind. It's about moderation and relaxation and being social. That's what our brand stands for and we're just really happy to be finally operating on the West Coast in multiple states with licensing deals, as pointed out earlier, in Chicago with certain partners there. So we're really happy with our progress to date.

Gerardo Del Real: Excellent. I'll actually be in Chicago on Monday. I grew up there and go back every year to visit Wrigley and take the kids and the wife out there and visit a ton of family that I have. But I digress.

I want to talk a bit about the management team. Obviously you are very, very good at getting ahead of a trend if you were looking at this seven years ago from the medical side of it. Right? You obviously have some first mover advantage. I don't think it's an accident or coincidence that you're operating in the markets that you're operating in. Can we talk a bit about the management team? And then let's get to those markets and what you're doing in each of those.

John Gorst: Yeah. So the team that I built at the C level of the company or the organization are made up of entrepreneurs themselves, made up of our Chief Marketing Officer for example, 32-year career in brand and advertising in Hollywood and LA, also had two exits of his own. Built an ad agency and exited that. He was also part of one of my former ventures that I had mentioned earlier that we exited together on the tech side. Our President of the company also had a very successful exit to a private equity group when he built his business after 22 years. And we've got some great young talent on the financial management side of the organization. We've really tried to build a team of experienced leaders, experienced entrepreneurs, that know how to deal with the ups and downs of markets. I think that's incredibly important.

You mentioned earlier being on the leading edge. Sometimes the leading edge can feel like it's bleeding edge, and I think that certainly we're seeing some of that right now in the market. We're seeing adjustments, companies are having to pivot. We're seeing valuations being hit, which is natural, right? It's organic, it's what needs to happen, it's what refines companies, it's what builds the best companies, and I think that we're experiencing that right now. And in order to navigate and pivot through those downturns and markets and end up successful on the other side, you need strong leadership with strong experience leading companies through those good times and bad times. So really happy with that.

Gerardo Del Real: Let's talk how Ionic Brands will move forward. You mentioned being in Washington, Oregon, California, and Nevada. Tell me a bit about the business model looking ahead here in the next 6 to 12 months, let's say.

John Gorst: Yeah. Well, at one time Washington state was the most competitive market in the country. 127 vape products just here in the state of Washington. We've seen over the last six to eight months, a thinning out of companies. The natural progression, the cream rises to the top. California now being the largest market in the world and operating there is exciting. I think for us, the most exciting market is Nevada, Las Vegas. And the reason for that is you have 42 million people a year that are coming in to Vegas to have a good time. Their lifestyle is about luxury premium. They come in, they pick up our products at stores like Planet 13, and then they take that experience back home with them. So that helps us build our brand recognition, our brand equity.

So Vegas is a very exciting market for us to operate in from our position, just based on our overall brand strategy. So in terms of future expansion, looking at markets that also identify with that lifestyle, the Miamis of the world, Miami, Florida, New York, Chicago, et cetera. So, really aligning the markets with the brand strategy is very important.

Gerardo Del Real: You recently completed your acquisition of Zoots. Can we talk about that?

John Gorst: Yeah. Zoots is a great edibles product here in the state of Washington, has been operating for about four years, was one of the top edibles brands in the state, and like a lot of companies, went through some difficult times. We were able to bring a great team on board with us to augment our management team. It's a sugar-free edibles product that appeals to a vast variety of consumers. So what we're doing now is we're shoring that up, that brand. We've gone through a brand refresh here in the state of Washington, and then for H2 or half year 2019, it's about bringing that edibles product into the other markets that we're operating in, Nevada first and then California.

Gerardo Del Real: Obviously you're in very big markets. The trend is absolutely clear as far as legalization or decriminalization in the majority of states. I think we can look at budgets and the pension issues that a lot of states have and you see places like Illinois that are coming to the realization that one, this is a great tax revenue generator, two, it offsets a lot of the cost for city budgets and that's a whole nother conversation to have. But where I'm going with that is the markets that you're playing in are big huge markets. Your market cap is tiny, I believe it's $20 million if I'm not mistaken. Is that accurate?

John Gorst: Thereabouts, depending on throughout the day. Correct.

Gerardo Del Real: Sure. Depending on when this interview is published, right? Can we talk about insider ownership? I'm very big on management having skin in the game. I think you have to align management interests with shareholder interests. What does that look like?

John Gorst: Yeah. So we have, out of 151 million shares approximately that are issued, 52 million of those are insider shares.

Gerardo Del Real: Excellent.

John Gorst: The largest blocks are held by myself and my partner, Andrew Schell. He and I recently have been in the market according to what people can see in our filings, recently purchasing more stock. So obviously we're big fans of our company. We're putting our money where our mouth is. I've personally participated in every round of financing the company, so obviously I'm a big believer in what's going on. I think that right now you just have people that, in terms of overall capital markets, cannabis segment being down 76% year over year, a lot of nervous nellies out there, if you will.

Gerardo Del Real: Sure.

John Gorst: So we just have to work through that process and do the best we can as management to build value for our shareholders. So whether the market's up, whether the market's down, our goal always remains the same, and that is to try to continue to build value through those peaks and valleys.

Gerardo Del Real: Excellent. Let me ask you this. Do you have a two-prong strategy to grow the markets you're in and simultaneously expand into some of those other markets that you mentioned? The New Yorks, the Miamis, the luxury lifestyle markets that you also seem to be pretty keen on. Or is the focus to just grow the four markets that you're currently in right now being that they're huge markets, frankly?

John Gorst: Yeah, great question. Obviously, we have an eye to the East Coast and we're very opportunistic and scrubbing opportunities that may exist there. Right now I would have to say that 95% of our focus is on the markets that we're in today, that we operate in. They're very large markets, very important to the overall strategy and growth of the company. Our motto this year for 2019 is to win the west and own the rest, so we are really hyper focused on the West Coast market.

I will say that we will be delivering and introducing our edible CBD lines here in Q3 along with our CBD vape products direct to consumer and in other retail establishments. So that's another dimension of our business that we really haven't talked about. But for the most part, like I said, 95% of our attention is on our existing markets that we're currently operating in.

Gerardo Del Real: Paint a picture for me, John, before I let you go, 5 to 10 years down the road. You obviously want to monetize this great asset that you're building, right? That's what you've done in the past. Everybody, every successful entrepreneur looks to do that. What does it look like 5 to 10 years from now in a perfect world?

John Gorst: That's a loaded question.

Gerardo Del Real: Yes it is.

John Gorst: Yeah, 5 to 10 years from now, most of the operators, including ourselves, will probably be part of a larger portfolio belonging to a larger company, right? So from our perspective when we set out in this business, the first question we asked ourselves is, "What is our exit valuation?" Right? That's where we started. Pencil to paper, where do we want to sell? What's the value of this business? We believe it's in excess of $1 billion. That is management's goals. That's what we're trying to build for our shareholders. A premium luxury strategy, or portfolio products and brands, we think is going to be very attractive to the right suit at the right time. More likely when legalization happens. That's going to be tied together.

Gerardo Del Real: Fantastic. That's exactly the answer I was looking for, John. Again, the market cap is sub-$20 million. You're in it for a $1 billion brand. That's billion with a B. Is there anything else that you'd like to add before I let you go?

John Gorst: No, I think I'm great. Everything's good and we're excited about the cannabis sector and growing our business and providing value to our shareholders.

Gerardo Del Real: Fantastic. Well you've proven that you can use the volatility to your advantage. You mentioned the fact that you have that first mover advantage and I think that the volatility we've seen lately is indicative of that with a lot of companies going away and the better companies growing. So congrats to you and the team and I'm looking forward to keeping up with the story. Thank you again.

John Gorst: All right. Thank you.

 

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