Gold Flora's inclusion in our Cannabis Position Monitor, marked with a LONG BIAS, is a strategic move as we expand our focus on California Cannabis. Mark your calendars: December 27th, 2 PM – delving into our preliminary insights on Gold Flora and exploring the company's prospects.
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What is Gold FLORA
Gold Flora, LLC, was established as a private company in the heart of California's dynamic cannabis market in November 2016 and now has the potential to become a significant player in California Cannabis. The company is a verticle operator whose operations encompass cultivation, manufacturing, distribution, and retail, all under its broad spectrum of operations in the California market. In a strategic move in July 2023, Gold Flora merged with TPCO Holding Corp., forming Gold Flora Corporation (GRAM). This all-stock transaction has potentially birthed a powerhouse in the cannabis industry. We are in the early stages of our research, but all signs point to a company that will become significantly larger.
Gold Flora Corporation's infrastructure is impressive. It boasts an indoor cultivation canopy of approximately 72,000 square feet, potentially expanding to 240,000 square feet. The DHS Campus, a sprawling 200,000-square-foot facility with scalability of up to 620,000 square feet, is a hub for manufacturing and extraction activities, including Stately Distribution. Gold Flora Farms, situated within the BlackStar Industrial Properties in Desert Hot Springs, CA, also represents a state-of-the-art, fully licensed cannabis campus. The company's extensive network is a significant asset, enabling it to sell and distribute for numerous prominent brands. Its portfolio includes premium lines such as Gold Flora, Monogram, Caliva, Mirayo by Santana, Cruisers, Roll Bleezy, Sword & Stoned, Aviation Cannabis, and Jetfuel Cannabis. This diverse range of products and brands underlines Gold Flora Corporation's prominent position in the California cannabis market. Over the next few years, we expect GRAM, steered by an enterprising women-led team, to broaden its influence across California. This expansion will likely broaden from nine unique cannabis brands, a network of sixteen retail dispensaries, and a suite of subsidiaries benefiting from its Stately Distribution division. The corporation's retail portfolio shines with prominent names such as Airfield Supply Company, Caliva, Coastal, Calma, King's Crew, Varda, and Higher Level, marking a significant footprint in the industry.
Gold Flora Managemant
Post the business merger, Laurie Holcomb, founder of Gold Flora, ascended to CEO of Gold Flora Corporation. Troy Datcher, previously at the helm of TPCO and its board chairman, now chairs Gold Flora Corporation's board. This board comprises seven members: four from Gold Flora (Laurie Holcomb, Michael W. Lau, Heather Molloy, and Jeffery Sears) and three from TPCO (Troy Datcher as Chairman, Al Foreman, and Mark Castaneda). Laurie Holcomb has a robust real estate development background and is adept at navigating the intricate web of California's environmental, water, and land-rights regulations. This expertise enabled her to efficiently develop a comprehensive cannabis complex efficiently, outpacing competitors in the cannabis boom, both in speed and cost-effectiveness. Additionally, her experience in startups and company restructuring further solidifies her leadership credentials. As the leader of a rare woman-owned, vertically integrated cannabis enterprise in the U.S., Holcomb is poised to continue her significant influence and contributions to the industry.
Some of what we will cover on the Call:
- Consistent with our positive view on GLASF and its opportunities, we will look at the current state of California cannabis, focusing on GRAM as a vertically integrated SSO.
- What it takes to be profitable in California and why the multi-state operators have failed.
- The transformation of Gold Flora and its current business model look at its retail footprint, brands, and significant cultivation capacity already built out.
- GRAM will benefit financially from a potential move to schedule 3, and the company owns the trademark "Grown In California," which puts GRAM in a prime position post-prohibition and the potential for interstate commerce.
- A preliminary look at the 2024 valuation
It's imperative to recognize that GRAM is a newly formed company, thus inclining towards a LONG bias, primarily due to the sparse financial disclosures available at this juncture. The merger with TPCO was finalized in the early days of July. Consequently, the firm has only unveiled a solitary quarter's financials (3Q23) post-merger, marking its inception as a consolidated entity. The expansion of their cultivation operations is noteworthy, particularly as it circumvents the necessity for additional capital infusion. In tandem with their substantial retail presence, this sets the stage for robust revenue growth in 2024. Moreover, bolstered by a robust balance sheet, the company's unwavering dedication to maintaining a streamlined operational framework distinctly positions it toward improved profitability.
That said, it reported the following in 3Q23:
- Total Revenue: 32 million.
- Gross Profit: 11.3 million (35% margin). Adjusted Gross Profit: 18.1 million (57% margin), excluding certain operating expenses and adjustments.
- Net Income: 23 million, including a 49 million non-cash gain from the TPCO Holding Corp. Business Combination.
- Adjusted EBITDA: Loss of 1.7 million, influenced by costs related to the TPCO Holding Corp. transaction.
- Net Cash Position: 32.3 million as of September 30, 2023.
Also, in the first reported quarter, the company showed meaningful progress toward profitability as it successfully realized annualized cost savings of 30 million, significantly exceeding its initial target of 20-25 million. This achievement is attributed to several strategic initiatives:
- Organizational Redesign: The company undertook a comprehensive restructuring of its organizational framework. This strategic redesign was pivotal in streamlining operations and enhancing efficiency, contributing substantially to cost savings.
- Payroll Expense Reduction: A vital component of the cost savings was the reduction in annualized payroll expenses. This was likely achieved through measures such as workforce optimization, where the company may have reassessed and realigned its staffing needs to operate more efficiently.
- Real Estate Optimization and Lease Renegotiation: The company effectively reduced costs associated with real estate by optimizing its use of physical space. This optimization and successful renegotiation of lease terms contributed to significant cost reductions.
- Transition from Third-Party Service Providers: By moving away from reliance on third-party service providers and leveraging its vertically integrated platform, the company was able to reduce external service costs. This shift resulted in cost savings and likely enhanced operational control and efficiency.
The company foresees additional cost reductions in 4Q23 and into 1H24. These savings are projected to stem from integrating its back-office systems, a move expected to generate further synergies. This integration aims to amalgamate and refine back-office operations encompassing finance, HR, and IT. This consolidation is designed to enhance efficiency while simultaneously diminishing operational expenses. If our early research is correct, GRAM stands on the brink of becoming the second company in California to achieve profitability. However, a more thorough investigation and time is required.
