SLANG Worldwide Inc. (SLNG) Earnings Call Transcript & Summary

I move that motion.

Thank you. I second that motion. Is there any discussion or any questions submitted from any registered shareholder or proxy holder? Now there is a delay on the system, so I'm going to continue on the matter and watch these questions come in, if any do. I've been advised by the scrutineers that all resolutions have been approved by more than the requisite majority and that those nominated have been duly elected as directors of SLANG Worldwide Inc. I declare the motions carried, and the nominees for the Board of Directors elected. Unless there are any questions from the floor, the Chair would entertain a motion that the meeting be concluded.

I move that the meeting be concluded.

I second the motion. I now declare the meeting concluded. Thank you very much for your participation. While the formal business of the meeting has been concluded, we invite all of you to stay for a presentation management has prepared about SLANG's strategy and recent progress. I also would remind you that the Q&A window and platform is still open. If you have any questions that are still trickling in or the presentation stimulates any further questions. Before we begin, I would like to remind listeners that certain statements made during this presentation may constitute forward-looking information and forward-looking statements within the meaning of applicable securities laws. These statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of SLANG Worldwide and its subsidiary entities or the industry in which it operates to be materially different from any future results, performance or achievements expressed or implied with such forward-looking statements. These risk factors are discussed in detail under the heading Risk Factors in SLANG's management discussion and analysis filed on SEDAR. These statements reflect management's current expectations regarding future events and operating performance and speak only as of the date of this presentation. New risk factors may arise from time to time, and it is not possible for management to predict all of those risk factors or the extent to which any factor or combination of factors may cause actual results. Performance or achievements to be materially different from those contained in forward-looking statements, given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Although the forward-looking statements contained in this presentation are based upon what management believes to be reasonable assumptions, SLANG cannot assure investors that actual results will be consistent with these forward-looking statements. The corporation undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required under applicable securities legislation. That concludes -- I guess now is Chris' opportunity to lead this presentation. I invite Chris Driessen, the incoming CEO of SLANG Worldwide, to dive in, and for anyone listening to please submit questions to the Lumi platform. Chris, take it away.

Thank you very much, Peter. Good afternoon, everyone. We're going to give an investor presentation today that clearly articulates what SLANG does, how we make money, how we grade our success in an effort to provide clarity. One of the things that regularly comes up for us is we don't really fit in a standard box of what many cannabis companies are, the category they're defined by. We're in multiple states, but yet we're not a traditional MSO. In some places, our network affiliates manufacture products. In other places, we license those products. So it is a very complex layout, and so I want to give everybody clarity about how that works, specifically what we do, how we're grading our success and what we expect coming in the future. A few key messages for 2020. And first and foremost is that profitability is our #1 priority. We believe the consolidated profitability and positive cash flow are the best way to drive value. We maintain a strong balance sheet. But in addition to that, we have a clean balance sheet that's not burdened with much, if any, material debt. We're all aware of the COVID-19 pandemic and the difficult times that has presented to the world, and we've been affected by that as well. It's been difficult to navigate through these impacts. It's impacted consumer visits, tourism and ancillary sales. You may recall that many of -- some of our revenue is derived from selling to a distributor who's licensed or sells to non-cannabis retailers, head shops, smoke shops, et cetera, unfortunately, which were not deemed essential. We also focus on brand performance, product leadership, and we use metrics to determine how we are performing in those areas. BDS Analytics is our preferred source of industry data, and this is how we determine our brand performance. We're a scrappy, resilient company that is built to stand the test of time and overcome adversity and ultimately thrive. Our business model, which you'll learn more about subsequently in the presentation, allows for flexibility to either deploy capital into core markets or pivot to an emerging market strategy to preserve capital when and where needed. It's important to know where we come from and to understand better where we're going to. In the past, we had considered California, Massachusetts and Michigan to be core markets. We're investing capital, pursuing licenses to consolidate supply chain assets in those markets to ultimately have them be core. After further market analysis, we've determined that these markets will be best served for SLANG as emerging markets. We'll describe what an emerging market and a core market is shortly. But in short, California, Massachusetts and Michigan give us the greatest opportunity at profit in this emerging market model via strategic partnership with proven operators. In 2019, as you know, we went public, entered into several M&A transactions, and we're pursuing branded unit sales at all costs. And while this is one of our core KPIs that we measure, or key performance indicators, we now prioritize profits over revenue. Revenue is vanity, profit is sanity, and profitability is our #1 priority. We're laser-focused to deliver consolidated profitability by reducing cost, integrating and consolidating assets in our core markets of Colorado and Oregon, and expanding our network through strategic partnerships, which allow us to derive more revenue than traditional licensing by providing additional value-added services to our network. These services include sales and marketing, operational and product consulting service and come in addition to our standard licensing model. Our core market excellence is evidenced by revenue increases of 181% quarter-over-quarter and 757% year-over-year, respectively. We also are seeing massive gains in market penetration in both Colorado and Oregon. And combined, we're at almost 600 dispensaries in these 2 states. This dominance provides a distribution platform to introduce new products quickly and efficiently, which support increased revenues and the associated profit. We're able to expand our network through strategic partnership model into emerging markets. We've demonstrated this strategy again and again, most recently with Standard Wellness in Ohio, Gage Cannabis in Michigan, Elite Cultivation in Oklahoma, Wellness Connection of Maine and, of course, Trulieve in Florida. Opportunities, there are many market factors happening across the markets that we serve that are providing opportunities for SLANG to capitalize on. Market pressures have recently -- with people losing jobs to the COVID-19 pandemic have driven consumers to larger cart sizes due to decreased visits and lower priced products, primarily in the value segment. Our increased product diversification and segmentation across multiple categories allow us to capitalize on this opportunity. SLANG has brands in the most popular categories in cannabis, including flower, vape, edibles, concentrates and now pills. But not only are we widely distributed across those categories, we also have deep product segmentation within those categories. For example, Firefly and its Mini is one of the best-selling disposables in Colorado and offers a premium experience. O.penVAPE with its micro device is a value-based experience and it allows us to appeal to a wider set of consumers. We win breadth providing products that consumers love in multiple categories and segments within those categories. We're excited to introduce hydrocarbon products in multiple markets with our upcoming launches of Craft Live, Bakked gyro and a reimagined Dabaratus device. These products will include live resin carts and concentrates as well as Rosin Carts and concentrates. These products were previously unable to be manufactured as we did not have hydrocarbon extraction or rosin infrastructures to support them. By adding these to our capabilities, we can now enter some of the fastest-growing categories in cannabis. We offer one of the most diverse and widely distributed portfolio of brands and products in the cannabis industry. This wide selection of products under numerous brands are well segmented across multiple categories. This gives us flexibility in security as consumer preferences shift. Our strategic partnership network is one of the strongest in the industry. Our partners are a veritable list of who's who in their respective markets or sectors. These partnerships with some of the strongest operators in the industry allow for us to bring the SLANG portfolio of brands to an even wider audience. The scoreboard that I mentioned earlier is demonstrated across multiple analytics services, but brand leadership highlights include being #1 in vape in Colorado for the sixth consecutive year. Our new Firefly Mini device, although introduced only halfway through the year, has risen to be #4 in the disposable vaporizer category in Colorado. District Edibles continues to perform strongly in the markets that it serves, most recently entering the Oregon market with both gummies and sours. Bakked concentrates still performed strong in the distillate concentrate category across multiple markets, and we look forward to increasing that penetration with the introduction of live rosin -- or live resin and rosin products. And Pressies, which has been on a tear lately, is now the #4 pill in Colorado and rising. Brand performance is consumer validation that we make great products that people love. We often hear that people buy our products over competitors due to the repeatability in experience. Consumers simply know what to expect when they have the -- simply know what to expect from us and then have those expectations met or exceeded over and over and again, which develops brand loyalty. We monitor these statistics monthly and hold ourselves to a high standard to compete and win in all of our categories, and we look forward to watching the scoreboard with our upcoming product launches in the live resin and rosin categories across multiple form factors. SLANG also has a robust innovation pipeline. I think many of you know, we've entered into a strategic partnership with California lifestyle brand, Cookies. We've now brought to market product in both Oregon and Colorado. This diversifies our product offering and it's our first entrance into flower in the U.S. market in both of those states. We look forward to even more products coming down the pipeline with the recently launched Craft -- or Cookies turk sauce cartridges in Colorado and coming soon to Oregon. SLANG partners with Cookies, but it does not own this brand. We receive revenues from the distribution of flower and the manufacture and distribution of manufactured products in our core markets of Oregon and Colorado. We'll soon acquire Lunchbox Alchemy in Oregon, which also means we will own the Lunchbox Alchemy brand of products, including Squib gummies, Mini Squib gummies and Betties hard candies as well as Tangos sour gummies, furthering our segmentation into the edibles category. Lunchbox Alchemy is a premium, organic and vegan edible brand that Oregonians and soon more will love. District Edibles is a value brand. These 2 brands combined offer retailers segmentation in their edible line and appeal to both value and premium consumers. We also develop products for our owned and internal brands, as evidenced by the Bakked gyro, a concentrate offering coming under the Bakked brand; Craft Live, a hydrocarbon or live resin cartridge coming under the O.penVAPE Craft brand; and of course, the Firefly Mini, which we mentioned earlier, which will have a rosin offering. It's important to understand how we make money. SLANG makes money by selling components, packaging, hardware, flavoring, concentrates, bases to our licensee network, known as the SLANG Network. We also sell either direct-to-consumer via e-commerce channels or through distributors such as Greenlane, non-plant touching products such as the Firefly 2+ dryer vaporizer as well as the O.penVAPE 2.0 battery and several other things also. We generally sell these products to the SLANG Network, which is a combination of operations in 12 states, 5 continents and being widely distributed in over 2,600 stores. How does SLANG get these brands to market? Once the packaging, the components, et cetera, is sold to the SLANG Network, we either own a minority interest in, have binding options on, or operate at entirely arm's length for the manufacturers that are producing and distributing these products in their respective markets. We've previously announced the upcoming acquisitions of Lunchbox Alchemy in Oregon and Allied Concessions Group in Colorado and look forward to finishing those, which will truly be our introduction into being plant-touching. We authorize these extractors and manufacturers to produce and wholesale our branded goods to retailers, manufacturers in which our company has no ownership interest or noncontrolling ownership interest, represented the majority of worldwide branded unit volume of the company in the quarter that ended June 30, 2019. Generally, the company's operations, which license our brands, sell ingredients and components to third-party manufacturers, generate higher gross margin but lower net operating revenue than our extraction and manufacturing operators, which generate higher net operating revenue but lower gross profit margins due to wholesaling. The strength of the SLANG Network is our distribution network. As we mentioned, we're in 12 states, 5 countries where we have either branded cannabis products or non-cannabis non-plant-touching products available for sale. Core versus emerging markets. Our core markets are Colorado and Oregon. Our core market is defined by SLANG or its network affiliates producing products all the way up through the wholesale selling activity or level. We do have acquisitions pending in both Colorado and Oregon. And once those acquisitions are done, not only will we receive the licensing revenue from selling the components, packaging, et cetera, to those markets, but also the wholesale revenue from selling completed finished cannabis goods. These markets, we expect to drive higher revenue and associated profits once the acquisitions are complete. Everywhere else that we're selling finished goods happens through an emerging market strategy. An emerging market is a place where we develop a strategic partnership with an existing operator who will then take our practices, take our brands, commercialize them, manufacture them and then distribute them through their market. And while emerging markets always have lower top line revenue as we're only receiving the licensing and consulting revenue associated with them, oftentimes present a larger opportunity for profit. We pivoted recently in Massachusetts, Michigan and California from what was previously a core market strategy into an emerging market strategy. This will ensure that SLANG has the greatest potential of profit in each of these places while also preserving our capital. Our business model is in a core market. Once the acquisitions are complete is that Slang will not only license to the affiliated business but also produce, manufacture, distribute and collect wholesale revenues in those markets. We sell directly to dispensaries in core markets and then dispensaries in turn sell to end consumers. In an emerging market, SLANG receives revenue collected from licensing fees and the goods sold and consulting revenue from sales and marketing services, operations and various value-added services we offer our partners. We do not benefit from the wholesale revenue in an emerging market but simply the licensing and distribution revenue. Those products are then made into finished goods, which are in turn sold to dispensaries and then to end consumers. Two core ways that we measure our performance are through brand key performance indicators. Branded unit sales is simply the sale of a finished good. In 2019, SLANG sold over 4 million branded units. Branded servings are a metric that determines how often is somebody able to experience our products. We define a branded serving as 5 milligrams. In 2019, the company sold 243 million branded servings. If you do the math, that comes out to roughly about 655,000 branded servings or experiences pervade every day of the year. The equation would be getting the city of Athens, Greece high on a daily basis. SLANG's revenue overview. And I think it's important to understand this because a lot of folks get us confused with the traditional MSO, which is defined as being vertically integrated all the way up to and including retail. SLANG doesn't own or have the intent to pursue retail opportunities anywhere across our network. We're wholesalers, licensors and distributors. If you look at a standard product that's $50 on a retail shelf, a retailer is taking all of that top line revenue. Most retailers' keystone products, which means the wholesale revenue is roughly $25 of that $50. When we have a core market, and once the acquisitions are complete, that will be the revenue expectation for this particular unit. In a licensing model or an emerging market strategy, we took $5, and that's what we receive as our licensing revenue on this $50 product. It's important to understand that revenue composition as you look across our network because not all of these markets are created equal, whether it be by size, profit potential, tax regime, et cetera, not to mention in some of these markets, it's a core market for us, and in some of these, it's an emerging market for us. We believe that brand ownership drives value. If you look at the current state of the cannabis industry, you can see that SLANG by its multiple is not being valued nearly as highly as traditional industries as far as it relates to brand. Major CPG companies are valued at 3x higher on average than major retailers because brand ownership drives value. We believe that once investors and the market better understands profitability and potential behind brand ownership and distribution, you will see this start to improve in time. What are we excited about for the second half of the year? First, we introduced flower through our partnership with Cookies. This previously was a category we didn't compete in, although it's the largest one in the cannabis industry, with over 50% of market sales in every market that it's sold in. We also are excited about the organic growth across our core markets. We've improved, as I mentioned earlier, 181% quarter-over-quarter and 757% year-over-year in our core markets of Colorado and Oregon. We benefit from strong brand performance in emerging markets as they mature. This is evidenced by performance in places like Florida. We recently released products in Ohio. Oklahoma goes live. I believe first products get delivered this week, and we're certainly very excited about our upcoming launch with Gage Cannabis in Michigan. This capital-efficient entry into emerging markets allows us to perform on our strategic expansion plans into new markets, get our brands out in front of more people and drive our branded unit servings KPI as well as our branded servings KPI. Once the acquisitions in Colorado and Oregon are completed, that -- we will consolidate those supply chain assets and recognize the revenue that the wholesaling in those markets provides. I'd like to turn it back over to Peter for questions and answer any questions that anybody may have. And I hope this brief presentation was better able to let you understand what we do as a company and what we're doing to improve and -- up on our success.

Thanks, Chris. No formal questions to the portal. So that concludes today's presentation. I would like to thank everyone for taking the time to attend SLANG's AGM. We look forward to continuing to update you on the corporation's progress, and as always, we'll make ourselves as available as we can to any shareholders with any questions, comments or interest in dialogue in the future. Thank you very much. Bye-bye.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.