Golden Leaf holdings Ltd (CNSX:GLH) (OTCMKTS:GLDFF) (FRA:9GL) CEO William Simpson discusses his expertise in cannabinoid edibles.  Golden Leaf is situated in Oregon, and although the prices of dried flower is decreasing in the Pacific North-West, they acquire it and create consumer packaged goods at a good margin.  They have a variety of product such as a cannabis-infused, vegan fruit chew. 

TRANSCRIPT:

James West: Hey, welcome back to Midas Letter Live.  My guest this segment is William Simpson.  He’s the CEO of Golden Leaf Holdings, trading on the Canadian Stock Exchange under the symbol GLH.  William, thank you for joining us today via Skype. 

William Simpson: Thank you for having me on. 

James West: William, let’s start with an overview.  You’ve recently taken over the role of CEO of Golden Leaf Holdings.  Tell me how that happened. 

William Simpson: Yeah, so I founded a company called Chalice Farms in Oregon.  We built it up to approximately four retail stores, we had a couple under construction is why I use ‘approximately’.  We had three farms at the time, a full edible line, oil, tincture, and we had so much consumer acceptance we wanted to take it to next level.  We wanted to take it to other states, other markets, internationally, and we were looking at doing either an IPO, or a large private placement. 

And Golden Leaf approached me and said that, you know, they could be the vehicle to accomplish that, basically giving us access to the Canadian public markets so that we could expand upon a proven model of what we were accomplishing in the Pacific Northwest. 

James West: So you essentially sold your company to Golden Leaf Holdings? 

William Simpson: Exactly. 

James West: Then you took over as management? 

William Simpson: We did. 

James West: …the best of all worlds. 

William Simpson: The new Board that came in decided the management team of Chalice was more of an asset to the industry.  Old management moved on to some other things, and we wished them well, of course.  But I can tell you, the only thing left of Golden Leaf Holdings as an old is really the ticker symbol and some outstanding shares.  But it really is the entire Chalice management team currently running the company, as well as some other new, talented individuals that we brought on to help with that endeavour. 

James West: Okay.  The big news in the cannabis space from where we sit, in Oregon, anyway, is that there’s a sort of race to the bottom going on in the price of cannabis.  How are you going to mitigate against that for your shareholders, and how do you survive in that environment? 

William Simpson: Yeah, so, we definitely are seeing that happen, and right now to our advantage, we’re not producing – I should say, cultivating – any cannabis in Oregon at the moment.  So we are buying from the market to put that flower onto our retail shelves as well as an input into all of our extraction, our distillates, or our edible lines.  So it’s working in our favour in the Oregon market at the moment, and I have seen a turnaround starting to happen.  There have been more cultivation licenses that have been relinquished in the past couple of months than new licenses coming in. 

So I see that consolidation happening at an expedited rate and turning around, which is great timing for us to bring online our Oregon cultivation facility, to have basically our own estate select cannabis.  It’s like the wine industry; they have their own small-production grapes onsite, and then they’ll buy mass-production grapes from other people.  I see cannabis being very similar.  People want the branded cannabis product on the shelf to be from Chalice, but then we’ll also buy from the market other small producers as well. 

James West: Okay, interesting.  So the survival mechanism, then, is to not grow cannabis when the price of cannabis is low; acquire it from other operators who are growing cannabis, focus on providing the consumer product where there’s still a margin? 

William Simpson: Correct.  Yeah, vertical integration is really the key.  It mitigates all the different segment pressures depending on if cultivation goes down or oil pricing drops or retail becomes very competitive.  When you have everything in the value chain in your model, it really allows for a more successful growth process.  And of course, in a highly competitive environment like Oregon, anything that is successful in this market, when we take that process, move it into other markets like Nevada, California, Canada and continuing, it proves to be successful. 

Because, like, for instance, our fruit chew is the first wholesome fruit chew that we’ve seen on markets; it’s vegan, has zero artificial flavour or colour, and it’s wildly successful, super flavourful, and that product, being that we cannot – demand is outpacing our manufacturing capabilities right now.  We’re doubling our capacity week-over-week, and we can’t keep up with it – in Oregon, which again is a super-saturated market, very competitive place. 

So when we take that product and we launch it in Nevada, hopefully in the next month, and then into California if we move into a definitive agreement with that letter of intent that you have all seen, that’s going to be very exciting to see that product expand. 

James West: Mm-hmm.  Do you think that what’s happening now in the Oregon market is going to happen in California once it gets a full head of steam up? 

William Simpson: You know, I believe it will.  I’ve had some meetings with some large operators in California, and they seem to say that it’s already starting to happen.  There’s such a large medical market that has been in play there for such a long time; the price of flower is already suppressed comparatively to Nevada, for instance.  You know, Nevada has done it differently; of course, they put a cap on licensing at the time, so it’s a unique marketplace.  But I do see that happening in California, and again, learning from what we’ve gone through in Oregon, I think we’re poised to be able to tackle that issue well. 

James West: Sure.  Do you think that, if there was a federal law permitting cross-border sales of cannabis products, would that actually help or hinder the situation with the excess of cannabis on the supply side? 

William Simpson: Well, I mean, I think it would help in certain markets.  I mean, obviously Oregon would gain a lot from the Federal, I should say, de-scheduling, because people know that the cannabis in the Pacific Northwest, at least on a connoisseur level, is of a very high quality.  And so markets like, you know, Florida or Texas, Arizona, where they don’t have as much quality product, I believe there would be a high demand. 

Now, I don’t see California buying a lot of Oregon cannabis just because they have such a robust program again themselves.  I do see a lot of Midwest and East Coast states purchasing the flower if that happened. 

James West: Mm.  Okay, so, in the next, call it 12-24 months, do you think that the supply side of Oregon cannabis is going to contract, and thereby giving you your window of opportunity to launch your grow facility?  I mean, you’ve said that is the case.  But you think, I mean, is it going to be a case of expansion and contraction continuously like an accordion, or do you think that it’s going to sort of level out at some point as the State, perhaps, realizes it’s not in their best interest to license so much capacity? 

William Simpson: I believe you’re correct.  I believe the State realizes that the overproduction is an issue with diversion; it’s the last thing that anyone in the industry wants when you’re running a compliant business and growing it.  You know, you don’t want the bad actors taking down the entire industry with a microscope from the Federal government.  So I know the legislature and agencies around all of the licensing understand this issue, and I don’t see them expediting approvals on cultivation licenses.  So I do believe it’ll contract and stabilize somewhat.  I do believe it’s going to take, you know, a year or two more; I don’t think it’s going to happen tomorrow, but it will slowly become healthier. 

James West: Right, okay.  And so what is the strategy for Golden Leaf going out the next 12 and 24 months?  What is your balance sheet going to look like in 12 and 24 months? 

William Simpson: Well, it’s hard to say.  We have a lot of warrant conversions right now.  Right now currently, as I stated in New York, our balance sheet is approximately 17 million.  We do have a lot of that capital earmarked for accretive acquisitions, some of which we have just put out letters of intent which the world has seen, which those are very accretive acquisitions, though; they will add a lot to our top line as well as to the bottom, and I’m going to be very excited to be able to report those things as they come out. 

But I do believe, you know, we’re going to have enough capital; it just depends on how fast we want to grow.  Right now we have to be very strict in the use, that’s why we’re focusing on high-return markets like Nevada.  We’re very excited to expand everything that we’ve done in the Oregon marketplace into that market.  We have cultivation/extraction right now; our pens are going out into the market, we’re launching our fruit chews, we are expanding cultivation there through an acquisition which we announced, I guess that was a week ago now; and then in California, same thing.  I mean, we’re taking our vertically integrated model and we’re expanding it into those markets, as well as Canada. 

We also just announced the franchising deal that we are working on with BlackArch Capital, and so that’s going to be a very exciting thing.  We can take our brand and expand our distribution model across the country and in other states.  So we’re really excited about that for the shareholder return, for sure. 

James West: Sure.  Okay, that’s great, William.  We’re going to leave it there for now.  It’s great to hear that you’ve taken the reins at Golden Leaf; I’m excited to see what you do with he company.  We’ll come back to you in a quarter’s time and see how you’re doing.  Thanks for joining us today. 

William Simpson: Thank you, James, very much.  Appreciate being on the show. 

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