By Nicholas Kovacevich
Many companies in the Cannabis Industry face similar issues:
At Kush Bottles, we have faced all of these challenges, and recently made the decision to transform from a privately-held to a publicly-traded company.
There are many options available to capitalize your company, and each has its advantages and disadvantages. However, when evaluating these various funding methods, it is vital to understand that there are many ways to reach the same financial goal, and often times the quickest or easiest route is not in a company’s best long-term interests.
When we decided to take Kush Bottles public, we had fully examined all of the alternatives and determined that tapping into the public markets would provide us with the capital we needed to expand our operations to fuel continued growth. However, well before we started the filing process, we built the proper foundation to assure we were positioning the company on the best possible footing.
Today you can find dozens of publicly traded companies in the Cannabis Industry. But take a closer look and ask: How many are profitable? Which ones have a track record of success? Are there companies that could be years away from having a steady revenue stream or a sustainable customer base?
Unfortunately, there are many small cap (or microcap) companies that appear to offer little more than a purely speculative bet on the future. This is especially true in the cannabis sector. Too many companies went public thinking they would ride the “Green Wave” to riches, but, didn’t take the time to first build a business with solid revenues and a realistic plan for future growth.
Many microcap companies utilize reverse mergers or purchase abandoned public company shells of dubious quality as a means to going public. These shortcuts to success can be tempting for those reaching for a fast buck, but could prove detrimental in the long term.
Other companies select a combination of private sector and public funds to capitalize their operations. At Kush Bottles, we started with private funds and built the company with the plan to go public after we had a proven track record.
Before we took Kush Bottles public, we had had sold over 100 million units, achieved over $4 million in yearly revenues, and we were on our way to being profitable. We believe this is an enormous advantage and helps distinguish us from other public companies in the Cannabis Industry.
However, taking a company public is not for everyone.
Public companies will face many new challenges. One of the biggest is the need for added disclosure for investors. Public companies are regulated by the Securities Exchange Act of 1934, and are required to provide periodic financial reporting, They must also meet other rules and regulations that are monitored by the Securities and Exchange Commission.
Moreover, the cost of complying with regulatory requirements can be very high. Additionally, the actions of the company’s management will become increasingly scrutinized, both by investors and by regulators.
At Kush Bottles, we welcomed this scrutiny, and can file our required financial statements and other documents with the SEC, because we are operating a legitimate and fully transparent company.
However, if you are running a privately held company that can’t stand up to intense inspection, then you do not want to go public. While not every company adheres to this standard, the public markets are designed for companies that operate in an open, transparent, and compliant manner – so that investors can make informed decisions.
The Cannabis Industry is not really much different than any other market sector. There are “Blue Chip” companies that have solid revenues and a track record of growth and success; and there are riskier companies that offer more speculative stocks.
Hopefully, more “proven performers” in the cannabis sector will go public, and fewer companies with unsubstantiated business models or questionable conduct. It would be good for the investor and good for the industry, too.
Nicholas Kovacevich is the Co-Founder and CEO of Kush Bottles, Inc., which has become one of the best-known packaging and accessory companies in the cannabis industry. Under Kovacevich’s leadership, Kush Bottles has grown to become a premier supplier, with offices in several states, proprietary product lines, and a fully staffed compliance department.
Kovacevich graduated Summa Cum Laude in from Southwest Baptist University, and started and ran several successful companies prior to founding Kush Bottles. Widely interviewed in major media, Kovacevich has emerged as an expert in matters pertaining to cannabis compliance, industry trends, marijuana packaging, and canna-business financing options. He can be contacted at [email protected]
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