Benzinga Interview with Joel Milton SVP of TILT Holdings

Scott Willis interviews Joel Milton, SVP Business Development of TILT Holdings and discusses their business-to-business cannabis operations.

Transcript

Capital 10X: For our viewers that don’t know TILT, could you tell us in a few quick sentences what you guys do and where you operate?

Joel Milton: We say TILT, we’re a partner for cannabis businesses. We’re really more B2B focused, offering a suite of solutions for brands and retailers across the industry. So everything from hardware like vape pen manufacturing, software, distribution, co-packing, contracting and manufacturing for brands.

Capital 10X: There’s a tonne of U.S. companies listing in Canada and it seems like it’s a crowded field. I’m wondering how we should think about TILT is differentiated from the other companies out here?

Joel Milton: I think if you look at the top largest publicly traded companies they are all MSO[s] (Multi-State-Operators) and for them usually what that means is they grow their own product, operate their own retail stores and build and distribute their own brands. And you could probably argue that most of those MSOs are competitive with one another.

TILT’s a little bit different, when you look at that large list of the top publicly traded companies, most of them are actually our clients. So, they buy their vape pen hardware from us, we do their distribution or last mile delivery, some of their stores operate using our software. So, really we’re different in that we’re looking at supporting the entire industry and not just the MSOs, but the thousands of other small business, independent mom and pop retailers too with really more of that B2B lens.

Capital 10X: I guess by 2020 you’re estimated to be one of the biggest operators in North America on revenue. Can you give us a feel for how you go from say $100 million in revenue to $1 billion in revenue?

Joel Milton: I would say we’re actually already one of the biggest revenue producing companies. If you look at Q4, we just posted $31 milllion of pro-forma revenue for Q4. That puts us in the top five of top revenue producing, publicly traded, U.S. companies and that’s even before our Massachusetts operation gets fully up and running. That’s before really the synergies of this business we’ve put together start to operate. TILT really was just formed in December through a merger and some of these acquisitions only closed in January. So what you’re seeing is really the revenue from all these independent companies, but what we’re going to be doing is combining these businesses and really building the full macro business.

Capital 10X: Let’s move to the independent businesses for a bit. Of the businesses that you have, which one is growing the fastest and where are you distributing your capital among these businesses?

Joel Milton: The largest revenue producer now is Jupiter. We announced they did $77 million last year and they’re selling hardware, one little vape pen at a time. We don’t have to be THE leader in the vape pen category or be the top oil brand, because we’re supporting all of them. Whether its an MSO or an oil brand or small businesses we recognize that its such an important category in the market and so we’ve built a product that supports all of that sector. Coming into the year, they’re definitely the largest revenue producing sector, but again as the rest of our facilities get up and running we’ll see more and more revenue come from the actual sale of cannabis products and that’s when you’ll start to see a lot better gross margins as well.

Capital 10X: So if you had to handicap and you get to 2020 which of your businesses now do you think will be your biggest?

Joel Milton: So the beauty of our model is that they all fit into one another. So if we think about where we’re going and where we wanna be, it’s leveraging the thousand stores that we have that already use our software, the almost thousand stores that we’re already doing wholesale distribution to and the hundreds and hundreds, almost thousand, brands that we’re doing distribution for or selling vape pen hardware.

As we get processing licenses in more and more states and grow more cannabis and produce more products, the revenue is mostly going to come from the sale of the products. But it’s unlocked by the scale and the network that we have of all the stores that we have that use our software. So what we may not make hundreds of millions of dollars selling software, we actually almost give it away for free, it’s those thousand stores that use our software that enable us to generate the crazy amount of revenue from the cannabis side of the business.

Capital 10X: So you talked a little bit about Jupiter vapes, I’m interested in that acquisition. What was the thought process, why were you like, this is an interesting business that we want as part of the TILT umbrella?

Joel Milton: If you think of TILT’s clients before that, you have the bigger retail stores that were using our software, you have the stores on Blackbird and the brands that Blackbird was doing distribution for, we looked at the other parts of the supply chain and the ecosystem where we wanted to have a real piece of revenue. Vape is such a fast-growing category and such an important sector, so doing distribution for vape pens is great, but we’re thinking what else? So we can either try to launch THE vape brand, but there’s a thousand of them, everyone is trying to do that. Then we found Jupiter and everyone said these are the best vape pens in the market and everyone was using them, from the publicly traded MSOs to the large oil brands, to the smaller stores. Everyone was saying they’re the best products, they don’t fail and we thought this is a perfect way that fits with our business model of being B2B that enables us to capture revenue as the vape market grows without tying ourselves to a single brand.

Capital 10X: As far as expansion opportunities, are you really focused on the U.S. market because the opportunities, or would you look at Canada, would you look at other countries? Where are you right now in your thought process?

Joel Milton: We really aren’t too focused on Canada. I think the U.S. market is so big and there’s so much opportunity, particularly with the challenges around state boundaries. It’s all of these challenges that enable businesses like ours to be a solution provider. So helping businesses scale in the U.S. is something we’re really good at and we see $100 billion still coming online in the United States, maybe ten of it is already unlocked.

So there’s $90 billion that’s going to be coming out just in the U.S. alone, the biggest MSOs might have 40-50 stores, there’s 4000. So again, only a small sliver of the market, it’s a great business model and they’re going to make a lot of money. But for us we think about how do we work with 30% of the market. How do we work with all the brands, all the retailers, and there’s so much opportunity in the U.S. that this is 95% of our focus right now.

Capital 10X: Last one that some of our viewers always ask. What are some of the important catalysts that you think people should be looking at for TILT to say alright this is when I need to dive in.

Joel Milton: It started I think with just completing the merger and acquisition. Some people told us we’d never do a four-way merger and a public offering or we’d never be able to buy three companies right afterwards. Fortunately, we’ve done that and now what we’re starting to see is the integration which is really exciting.

So we just announced the other day that we’re now carrying Jupiter products in the Blackbird trucks. So as we’re doing distribution instead of just distributing oil filled vape cartridges, Blackbird trucks now show up with empty cartridges, un-filled cartridges, drop them off and then pick up filled ones. So it becomes this two-way ecosystem and we’re starting to do this cross-sell and integrations of these different synergistic businesses and really that’s going to be the key to our success. Putting all these different pieces together and enabling this comprehensive suite of solutions for the sector.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

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Scott has over 12 years of institutional investment management experience analyzing both debt and equity securities. He has held senior investment research roles at Credit Suisse, and TD Asset Management. His core areas of investment coverage at Grizzle include marijuana, energy and crypto. Scott is a Chartered Financial Analyst and has been featured on Bloomberg, CBC, CNBC and Macleans. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.

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