Demand Brands (OTCMKTS: DMAN) has been ripping up the charts after its announcement on May 18th, 2021 of the acquisition of the assets that comprise the Lucky Chief brand. What is so interesting is the whole sector has been rising as stocks like Tilray (NASDAQ: TLRY), Aurora Canabis Inc (NYSE: ACB), Cronos Group, (NASDAQ: CRON), and Canopy Growth (NASDAQ: CGC) continue their climb higher on the increased chance of legalization.
This dip coincidently corresponded with DMAN’s announcement. This was the first announcement investors have seen in years which led to a stock-buying spree.
Supplying the Lucky Chief Brand is a vertically integrated cannabis seed-to-sale operation that has been in business since 2016. They were one of the first licensed producers of concentrate in California. They also have a cannabis license for their Type 7 lab for manufacturing, THC remediation, along with a full-service dispensary, and retail distribution facility.
Extraction is used to make their concentrate, and since the processing requires the use of volatile solvents, the State Department of Health mandates this level of certification. The most interesting part of this play is the name behind it all and that is what should continue to propel the price and the story unfolds.
Virde Fund 1 owns the Lucky Chief brand and a number of hemp/cannabis assets. It is a cannabis and hemp investment fund that primarily invests in hemp/cannabis assets and real estate. The fund was started in 2016 and appears to have raised $1.95 million and invested $965,000 to date. Some of their projects include Secyre Mobile App, CBD Switch Wellness, and Pharmers Hemp. They have offices in Marin and Sacramento, California and are looking for innovators and disruptors in the Cannabis and Marijuana space.
Their core holding is Pharmers Hemp which is essentially the genetics holding company for its hemp seeds. Their top sellers are Red Kross and Blue Kross because they spread the harvest period over a month allowing more time to dry their product. Their holdings include North West Hemp Co which has 17 acres and 160,000 sq ft of greenhouse space dedicated to hemp seed production. It is a certified seed breeding center based in Rio Oso California which is about 25 min due north of Sacramento. All the seeds produced on the farm are non-GMO and organic certified grown. To their accolades, they were the first certified seed crop ever in California. They also have a seed breeder’s license and only sell F2 seeds or higher. They also have a California Department of Food and Agriculture (CDFA) Industrial Hemp License. Within this operation, they also have a line of hemp genetics with hemp flowers and an in-house R&D facility. Their products include
Transplants – Hemp Seed Production – Trimming – Hemp Pre-Rolls
The companies in their core holdings appear to have a history of consistent sales and a track record of production. The primary products they sell are seeds and a hemp bio mix. As the organizer of Pharmers seed union they have leveraged their position to tackle regulatory matters and fight to ensure the intellectual property of all seed growers. Close to 150 seed producers are part of their membership which gives them a unique bully pulpit to land consulting jobs or potentially form partnerships.
The company came out of hibernation in early January this year when the Pacific Technologies Group, the prior company was acquired for 100,000 shares of Series A preferred stock. The company also made the move to significantly reduce the authorized stock from 2.5 billion to 1.0 billion indicating they wanted to clean up the structure and signal to shareholders the plan on minimizing dilution. In 2018 there were 372 million shares of stock outstanding at the end of the year. As of May 14, 2021 there are now 510 million shares issued and outstanding.
As part of the clean-up, there was the conversion of 138 million shares of Series A and Series B preferred stock into common stock. This clean-up resulted in 37% dilution to the company leaving a nominal amount of 100,00 preferred shares. There are 298 million shares in the float.
At the end of 2020, there were approximately $90,000 worth of convertible notes at a fixed price of $.005 that were held by Craig Fisher the ex-CEO. The new CEO is Peter Erdekian. So this $90K represents the only overhang on the stock.
New Management Team
The new CEO and director, Peter Erdekian, owns 100,000 shares of the Series A preferred stock. Unfortunately not much is profiled about him, except on LinkedIn where he mentions that he’s no longer seeking a position as CFO or management consultant. Based on the information on hand it seems he is the figurehead and his mission is to get the corporation cleaned up and ready for business. He was an MBA, CPA, and CFE so his skill set is suited for the corporate cleanup which has happened. It appears that the real leader of this company is entrepreneur Ian Dixon.
Ian Dixon has a 15 year background in finance, marketing and sales. Mr. Dixon’s background includes many functions as a successful real estate financier and former mortgage banker. He is currently very active in project acquisition, deal structure, finance, and vendor and partner relationships.
Prior to working in this space, Mr. Dixon spent over 12 years in various aspects of finance with a concentration in commercial real estate and secondary marketing. He has worked in multiple capacities including project acquisition, land entitlement, negotiation, finance and project management. Mr. Dixon owned and operated multiple real estate brokerages and an Inc. 500 bank employing over 300 employees nationwide 2003-2009.
Mr. Dixon has also run a sports tape company called War Tape which has domestic and international distribution. The sports tape he invented has been on the hands of various world champions in MMA and Boxing from Manny Pacquiao to Anderson Silva and Rhonda Rousey. He has successfully partnered with multiple fortune 500 companies such as ABG, Tapout, Reebok, UFC, Dr. Smoothie, Focus Brands, Chevron, and Starbucks. He is clearly a connected individual.
DMAN is a holding company with a number of related businesses that are expected to develop synergies and cross-selling opportunities. The key to success in a holding company is execution in each one of these verticals. This is where strong leadership of the likes of entrepreneur Ian Dixon are vital to the success going forward.
Due diligence has revealed there are some real assets in the company that have the potential to grow. Investors should not underestimate the importance of Dixon’s position in the seed grower’s organization and how important genetics is in the business.
Obtaining a dispensary license for cannabis in multiple states is no easy feat especially in California. Operating a greenhouse with 17 acres ensuring supply of product to the retail outlet provides great flexibility. The only question is whether or not the companies can start generating sufficient revenues to continue growing.
Based on the track record of Ian Dixon shareholders are in good hands.
The idea here is to bet on the jockey because he clearly knows what he’s doing. It looks like the hard assets and soft assets like the licenses are worth millions and will be headed into this company.
Good luck trying to find a cannabis license in California under $5 million. The current market cap of the company is $5.6 million which appears to be a fair value given there is only one press release to go off of.
The share structure is quite clean with one $90K convertible note that on the surface looks like it has been mostly liquidated. Almost all the dilution has been a result of incorporating the assets into the holding company which makes this a solid due diligence play.
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Disclosure: Insider Financial and its owners do not have a position in the stocks posted and have posted this article for free without editorial input. This article was written by a guest contributor and solely reflects his opinions.