• Ted Ohashi

Interview with newly appointed CEO of 1933 Industries (CSE: TGIF)

I was pleased to have the opportunity to interview Chris Rebentisch, the newly appointed Chief Executive Officer of 1933 Industries (CSE: TGIF) (OTCQB: TGIFF) who is now responsible for overseeing all of TGIF’s operations going forward. Chris founded Infused MFG in 2017 after personally developing the intellectual property for Infused’s line of hemp-based, CBD Infused consumer branded goods. Chris has been responsible for managing TGIF’s THC subsidiary, Alternative Medicine Association and has overseen TGIF’s expansion initiatives and product growth across the US. This was my first opportunity to speak with Chris since his appointment and I will provide my conclusions at the end of the interview.

Ohashi: I’d like to start by clarifying the timeline of your new facility coming on stream in Las Vegas. I visited your facility a few weeks ago and at that time you were in the process of installing machinery and equipment. When do you think that will be completed?

Rebentisch: it’s done. We have started the process of transferring our cannabis license from our current facility to the new facility which should take two or three weeks. So we expect to have the license transfer completed by the end of July with plants coming in right after.

Ohashi: so what’s that process like? I assume you will be staggering the planting so you can phase the harvests and have a consistent yield…

Rebentisch: correct. In our news release we announced that we have 5,000 clones ready to propagate the building and 200 mother plants of 26 varieties. The clones will be moved in right away and they will take around four weeks to continue to vegetate and then we will start the flower cycle. The flower cycle will take eight weeks. Then the harvesting, drying, packaging and testing takes another four weeks combined. So you’re looking at around 16 weeks from the time we put our first plants in until we get our first sales out of the new facility.

Ohashi: that puts us around November?

Rebentisch: yes. We expect the harvesting will happen in October. Then we need two weeks for drying, two weeks for testing and one week for packaging. So we’ll be into November when we have product ready to go out on dispensary shelves.

Ohashi: what kind of product are we talking about? Dried flower?

Rebentisch: dried flower and pre-rolls. These are the only two products we can make out of that facility.

Ohashi: your CBD infused products going out to 46 states. What stage are you at with those?

Rebentisch: we’re currently in over 800 stores across the U.S. of which around 350 are actually dispensaries in ten different states. We have a pretty aggressive sales team so we are opening around 75 new wholesale accounts every month. In the next two months we should hit the 1,000 store mark. Our plan for that is to add new CBD brands to our portfolio as we grow and become a nationwide distributor.

Ohashi: after that you have the hemp coming on…

Rebentisch: correct. We have a hemp extraction facility that will come on line at the end of the year. This does two things for us. It allows us to increase our profitability because we’ll be using our own hemp in our hemp based CBD infused products instead of having to buy it and it will allow us to offer wholesale products, that is, concentrates (full spectrum oils), isolates and distillates. This will give us a significant bump in revenues when we start sales in January and February 2020. This will also allow us to report an important improvement in profit margin. What we’re seeing as more hemp production comes on is a reduction in CBD price points and ultimately the prices of the end product. So getting our own hemp capacity will allow us to be more competitive on the top and bottom lines.

Ohashi: the hemp was a separate transaction from the new facility…

Rebentisch: that is correct. The building actually sits on the same parking lot that adjoins the new facility.

Ohashi: so if we look out a year from now, what do you think your revenue run rate will be?

Rebentisch: we haven’t officially given any numbers on that but I can say we are on pace to do $20 million this fiscal year that ends this month. So you’ll have to do your own numbers based on the outline I’ve given.

Ohashi: let me switch now to the management changes you announced recently. Congratulations on your appointment to Chief Executive Officer. As an outsider looking in, I see a formalization of the senior management group that has been in place.

Rebentisch: not completely. First, I think we have one of the top management teams for a company like ours. We’ve learned together. We’ve grown together. We’re at the top of our game. So giving people the ability to make decisions that impact our company positively is essential if we’re going to continue our growth trend. In our business plan, we’re moving toward consumer branded goods so the people we have put into the key senior positions have backgrounds in the retail and consumer branded goods space. It’s very important at this critical juncture for 1933 Industries to put the right people in the right positions so they can contribute to the very rapid growth we see coming up. We still have some spots to fill and these may be filled more from outside. But as you’ve said, it’s all good, it’s all about what we see ahead for the cannabis industry and the people we need to help us get there.

Ohashi: That’s a point well taken. I mean when I look at what you’ve done in getting your product into 800 to 1,000 stores in 46 states - that is really a significant accomplishment.

Rebentisch: Considering we were at zero two years ago, we are all very pleased where we are today. When I think about the revenue we are getting now and looking at the year ahead, yes it’s quite a feat. But it has taken a group of people working together at the top of their game for the past two years to get us from there to here. I mean when I look at the CBD side, it was my company that I partnered with 1933 that we put into the Reverse Takeover to go public. After that 1933 gave me a $250,000 loan and told me to go at it. So I built the company, the revenue and the brands on a quarter of a million dollars. You don’t see public companies out there doing that today. We learned how to build revenue for way less than what people today are buying it for.

Ohashi: I like the direction you’re headed in, that is, the Consumer Branded Goods space. I mean for several years I have been avoiding what I call the farmer in the cannabis industry. If you look at the tobacco industry, the farmer is the low man on the pole…

Rebentisch: …and the sugar industry…

Ohashi: exactly. My final question is what else do you see out there that you want to take advantage of?

Rebentisch: One thing we’ve given some thought to since late last year is that 1933 Industries is two companies: one is a marijuana company and the other is a hemp company. Running them combined has some positives. First, we have combined resources to run both entities which results in better profitability. That is starting to show and I think shareholders will really begin to see that as we move ahead from here. But on the other side, marijuana is still federally illegal in the U.S. while hemp is legal. So this causes us some problems in marketing but more in banking where bankers don’t want to touch a business associated with THC and U.S. institutional investors are harder to attract because of the THC connection. So when our marijuana revenue gets to a sustainable base level, maybe it will be time to think about taking the CBD side and listing it separately on the NASDAQ and running the two separately.

Our priority right now is to get the revenue and income of 1933 Industries growing so investors will share our vision and allow us to trade at a higher market cap. I think the next big push in the U.S. cannabis industry is to increase the appeal to the U.S. institutional investor and we want to be ready when it happens. We plan to start a program in that direction at the end of the summer.

Ohashi: Let’s not forget the next eighteen months is going to be pretty important for the U.S. cannabis industry from a political point of view with odds favouring changes for the better. In Canada, it’s kind of the opposite as the pro-cannabis Liberals are not doing well in the polls and the Conservatives are doing much better and were so strongly anti-cannabis in the last election, they made the Republicans look marijuana friendly.

Rebentisch: yes. I mean where we are now is where Canada was four or five years ago. So all we need is for someone in Washington to give cannabis the green light and we’ll all be off to the races for a few years. I think we’ll be well positioned with our revenue base high and growing by election time when someone might step forward to give the industry the go-ahead.

Ohashi: after our interview, 1933 announced it plans to use the original cultivation facility to increase extraction capacity including shatter, crumble, sugar, wax, budder and distillate under the Alternative Medicine Association (AMA) brand. This will increase production area from 483 sq. ft. to 2,215 sq. ft. doubling distillate production from 40 litres per month to 80 litres per month. Production is expected to come on line in the fall of 2019. It was also announced that 1933 has been working of the customization of equipment that will establish one of Nevada’s largest hemp extraction facilities with the ability to isolate CBD, CBN, CBG, CBC and several other cannabinoids and the ability to produce full spectrum and broad-spectrum oils as well as isolates that meet GMP standards.

Conclusion: This was my first chance to speak to Chris and my thanks to Brayden Sutton for setting that up for me. If found Chris to have a clear vision of where the thinks the U.S. cannabis industry is headed and how he sees 1933 fitting in. Obviously he has been an outstanding operational leader and I think he will be complement Brayden Sutton very well communicating with the investment industry. Running some “back of the napkin” numbers, I looked at the next fiscal year that starts next month and ends in July 2020. Based on my understanding of 1933’s current business, the timing and sales potential from the new cannabis facility and the new hemp facility starting up at the end of the year just as revenue from the new marijuana facility should begin to add to sales, 1933 Industries is a company that is trading at one times potential sales in the next twelve months and is significantly undervalued on that basis. Not only that, from the perspective a year out looking at the fourth quarter 2020 and the July 2020 results, the revenue run rate will point to strong growth in the year after. Both of these statements do not take into account the potential of sales and income from other sources. As an investment associate used to advise his clients many years ago with great success, “It’s time to fill your boots!”

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