In December of 2019, Michigan became the tenth state in the U.S. to legalize adult-use cannabis. It’s already outpaced Nevada to become the fifth highest-grossing state for cannabis sales and closed out 2020 just shy of $1 billion in sales.
At the epicenter of the Michigan cannabis market is Gage Cannabis – a leading vertically integrated cannabis operator that prioritizes small-batch product excellence and business fundamentals above all else. The company has experienced exponential growth in the short time they’ve been operational.
We recently spoke with Fabian Monaco, Gage’s President and CEO, where he discussed Gage’s ambitious growth journey at a time when the tide seems to be turning for the cannabis industry.
Thanks for speaking with us Fabian! Could you start by telling us a little bit about your background?
I started my career as a lawyer and eventually moved into investment banking when I joined GMP Securities and the team that brought Tweed (now Canopy Growth Corp.) public. I was excited — the firm was really backing the cannabis industry.
In that role, I got to see a lot of the firsts in the cannabis industry from a capital markets standpoint. I’ve been following the industry closely for almost six years now. I also completed a financing for Canopy Rivers for XIB Financial in Toronto (they had co-founded Canopy Rivers with Canopy Growth). After I had done that financing for them at GMP, I joined the company to help them build Canopy Rivers. In conjunction, we actually started Gage roughly around the same time.
Since its inception, I’ve been the President and Director of Gage Cannabis. We started the company in November 2017 and completed a big financing in March 2019, which is how we were able to really go after the build-out of our operations.
Even though we have only been operational since the summer of 2019, our company has experienced exceptional growth. Today, Gage has three different cultivation facilities, one processing asset, and we just opened our sixth dispensary! What’s more, we’ll be opening up one dispensary per month for essentially the remainder of 2021. It’s a lot of growth and we’re very happy.
Gage underwent a Regulation A+ financing recently. Tell us a little bit more about that.
We launched the Reg A+ in the middle of October 2020 and closed the books on December 31st. It was a really quick process. Often, you see Reg A+ financings in the U.S. that go on for almost a year. And frankly, those financings rarely reach the full maximum $50 million dollars limit.
For Gage, we were well oversubscribed by December 31st and we had to shut it down quickly. People were still getting in the system and trying to invest! It has been a really, really positive experience for us which allowed us to raise the full $50 million dollars. Close to 3,000 people went into the system and we now have over 1,000 new shareholders, which is amazing.
I would say that Gage is probably one of the fastest companies to get $50 million through the Reg A+ process. It was a boost in our confidence to have the raise go so successfully and the funding is going to be transformational. Moving forward, you’re going to see the same type of hyper-growth that you saw from Gage in the past year and a half.
So it seems like COVID hasn’t thrown a wrench in any of your plans.
COVID has been tough without a doubt. We have close to 300 people working for the company and we want to ensure the safety of every one of them.
Luckily, cannabis businesses were deemed essential which allowed us to operate during the pandemic without completely shutting down. As a result, despite COVID, this past year has been one of growth and success. At the end of the day, that’s all well and good, but ultimately we want to make sure that our employees and customers are safe.
Let’s dive into Michigan. What do you want investors to know about the Michigan cannabis market?
Michigan was one of the fastest-growing cannabis markets in 2020. It was in the top 10 in terms of monthly sales (medical and adult-use) and finished the year just under $1 billion! Michigan has also been consistently beating out Illinois in sales until recently, which is surprising. Illinois gets a ton of fanfare and excitement. Obviously, there are a variety of MSOs in Illinois so the state is able to get that exposure. There really is no large player that participates in the Michigan market, but Gage is becoming one.
People fail to realize that Michigan has a very similar size market to Illinois. It’s really just California, Colorado and Florida that are ahead of Michigan and Illinois. Maybe you’re wondering, how does this come about and how did it grow so fast? Michigan historically had the second-largest medical cardholder system behind California in the U.S. The Michigan medical patient number was number two for years because they came in with their original medical program in 2008. They’re a progressive state and trying to make sure that people had and have access to medical cannabis, so the numbers just grew over the years. When they implemented their new statewide medical system in 2017, that just helped grow the market even more. Now, there is a strong underlying base of Michigan medical patients that have been in the market for over a decade. That has resulted in a really refined consumer.
You have a customer that, on a per capita basis, consumes some of the highest amounts of cannabis in the U.S. If you compare it to any state, Michigan is right up there in terms of consumption habits. I expect there to be further phenomenal growth for Michigan in 2021. The state is really going to be battling it out for one of the top five spots for years to come.
What would you say to potential retail investors who are thinking about jumping into the cannabis space? Is there a light at the end of the tunnel? Is this a good time to jump in?
A lot of cannabis investors got “burned” in the kind of downturn that we saw in Canada, where the projects and acquisitions that a variety of licensed producers made didn’t come to fruition. The difficulties in the retail rollout across the provinces in Canada as well, didn’t create a nice, cohesive market to really accept all of the demand. Canadians are also massive consumers of cannabis on a per capita basis. But we’re just starting to see those numbers really start to show. You might have noticed the cannabis names, even the Canadian ones, performing really well in December.
We saw a lot of growing pains in Canada, but those will be smoothed out over time. What’s exciting is that now, from a regulatory standpoint, we’re seeing so many discussions in the U.S. about potential legalization, and potential STATES and SAFE Banking Act provisions being passed, giving cannabis companies proper access to banking. Now that the Democratic Party took majority control of the U.S. Senate, in addition to the fact that Biden seems more welcoming to cannabis than Trump, the U.S. is looking more friendly towards cannabis. We think such moves could result in the removal of the onerous 280E penalties and potentially enabling U.S. cannabis companies to up-list to major U.S. exchanges, providing a pathway for a significant valuation upside.
Additionally, we’re seeing new names, new institutions, new high net worth investors coming into the space. I think they are feeling more comfortable about investing in cannabis. This fact, in conjunction with the regulatory changes on our horizon, I think it’s probably the best time to enter into the cannabis space from an investment standpoint. Consumption numbers looking great across the country, MSO numbers are top-notch, and from a regulatory standpoint, we’re actually starting to see cracks of change, which is just phenomenal.
So is it safe to say that Gage may be considering going public in the future?
We are! We actually plan on being a publicly-traded company by the end of Q1.
We have everything ready to go. We’ve completed our audit and we’re in the regulatory process as we speak. And so probably within a good six weeks or so we should be publicly traded.
Amazing! So what do you want potential investors to know about Gage?
For us as a company, the growth we experienced in 2020 and the growth that we’re going to experience in 2021 is going to be pretty transformational. Our production tripled at the end of 2020 with the third cultivation facility that we had come online. We’ve entered into a variety of contract grow agreements across Michigan. Additionally, we’ll have nine different facilities growing Gage and Cookies branded products by the end of Q2.
We are well-capitalized, we have a clean capital structure, and when it comes to the potential growth and the ability to be a dominant player in Michigan, one of the top five U.S. markets – we should attract plenty of investor interest.