By Pat Maio
November 23, 2018
This article was originally published in the Los Angeles Business Journal. Click here to view the original article.
Commerce-based MJIC Inc., a cannabis logistics company building a network of distribution hubs in California, plans to raise millions in a private placement before the end of the year and file for a public listing on the Canadian Securities Exchange early next year, the company’s top executive said in an interview.
MJIC plans to go public in the first quarter of 2019, according to Sturges Karban, MJIC’s 40-year old chief executive, who spent most of his career as an investment banker involved in mergers and acquisitions.
That experience is set to come in handy, as MJIC plans to be acquisitive ahead of its planned IPO.
“This is a race to the balance sheet,” Karban said, pointing to his company’s strategy to strengthen its cash position and make acquisitions to ramp up revenues in advance of going public next year.
Before the public offering, Karban said MJIC will finalize a private round, raised mostly from wealthy individuals and family offices that manage millions. He claims investors in the round hail from Canada, Colombia, Mexico, Hong Kong and Europe. Karban confirmed that one major investor is Australian Gaelan Bloomfield, who runs Greenfield Management Partners, an investment manager for a family office.
With funds from the private raise, MJIC plans to buy a Canadian shell company and execute a reverse merger, paving the way for the Canadian Securities Exchange listing, according to Karban.
Karban declined to put an exact dollar figure on how much MJIC plans to raise in December’s private placement, or how much it will raise in its initial public offering. He also said he could not publicly identify the underwriter or financial advisor of his company’s stock listing although he did say information is expected to be announced in the next few weeks.
MJIC will follow a stampede of cannabis companies that have rushed over the past year to the exchange in Toronto, including Culver City-based MedMen Enterprises Inc.
MJIC is in the process of creating an above-board supply chain for the multibillion-dollar California cannabis industry, which is slowly moving out of the shadows after recreational pot was legalized in the state by ballot measure in 2016 (medical marijuana has been legal in the state since 1996).
Cannabis remains illegal under federal law, so companies such as MJIC are forced to silo their operations inside state borders or risk running afoul of federal interstate commerce law. Marijuana operations within state boundaries can also be targeted by federal prosecutors although they have become rare since a 2013 memo from the Department of Justice made the prosecutions of such crimes a low priority.
Companies operating within California also face challenges at the state and local level where they have to procure a set of dual licenses to operate legally.
The rewards for getting these licenses can be immense.
Oakland-based research firm Arcview Market Research estimated the 2017 U.S. cannabis market at $8.7 billion. Arcview and Boulder, Colo.-based BDS Analytics forecast cannabis spending in the United States will reach more than $23 billion by 2022. Arcview estimates California alone will reach $7.7 billion in legal sales by 2021.
Karban said MJIC plans to fill what it claims is a void in the logistics space for the industry, moving pot from wholesale distributors to retailers and then consumers.
Besides trucks and warehouses, MJIC describes itself in marketing information as an “omnichannel” for the cannabis industry, attempting to connect the multiple segments of the industry through a variety of services that it offers: accounting, compliance and e-commerce, to name a few.
“This is an infrastructure build,” Karban said.
MJIC currently has six or seven distribution hubs in various stages of licensure, located everywhere from Long Beach, Coachella and San Diego in Southern California to Oakland, Sacramento, Brisbane in South San Francisco and Monterey up north. The license to distribute marijuana in these cities is “a significant financial burden,” and can require more than a 1,000 pages of paperwork, Karban said.
MJIC’s strategy right now is focused on real estate: it has purchased warehouses in Long Beach, Coachella and Oakland. Coachella and Oakland are the only ones with operating licenses while Long Beach’s is pending. Brisbane is expected to issue the company a license to operate in the city in late December.
Marijuana is legal in California as of Jan. 1, 2018, but each city decides if it’s legal within its borders and Los Angeles proper has struggled with the rollout of its licensing program – thus the warehouses in Long Beach and Coachella, Karban said. The industrial warehouses range in size from 3,000 square feet in Oakland, 10,000 in Long Beach and 15,000 in Brisbane.
“They are small, but they go vertical,” Karban said.
They’ll also have extensive shelving and storage space for cannabis flowers, trim and oils, and cannabis-filled vape cartridges, chocolate bars and infused beverages.
“We don’t (grow) the plants,” he said. “We handle tens of thousands of grams of oil per month and thousands of pounds of flowers a month,” he said.
To transport product, MJIC will operate fleet of white Mercedes sprinter vans – valued at $80,000 each – moving in armada-like fashion to and from its warehouses. Security details will travel immediately in front and in back of the vans.
MJIC recently acquired an entity in San Diego with a fleet of drivers operating a distribution network throughout California. Karban declined to disclose the acquired company’s name.
It also purchased in September Los Angeles-based Puff Pack, an online subscription service with about 3,000 subscribers receiving monthly packages with the latest ancillary cannabis products – such papers and rolling trays.
“We are in an extremely acquisitive phase,” Karban said.