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Interview, Part 2: Vertical Cos. President Smoke Wallin

April 23, 2019

In the second part of our interview with Smoke Wallin, the president of Vertical Companies discusses the group’s new CBD offshoot Vertical Wellness, Canadian competition, and the future of cannabis beverages.

SND: What’s happening with Vertical’s CBD arm, Vertical Wellness?

Wallin: We invested pretty significantly in Kentucky last year and set up a hemp operation. We harvested 100 acres the first year. We have a 90,000-square-foot manufacturing facility where we’re extracting CBD from hemp, and we’ve started putting brands together. When the Farm Bill (allowing commercial hemp production and sales) passed in December of last year we realized that we suddenly had a federally legal product. By spinning out our hemp and CBD assets into its own company, we can now raise institutional capital, go public, and get to scale quickly, and we’re going to be able to sell at every channel. We announced that spinoff at the beginning of the year, and we’re in the process of executing it.

SND: What’s the current state of play for Vertical Wellness?

Wallin: This year I already have 2,500 acres locked up contractually with farmers, and they’re about to plant those 2,500 acres with our seeds. I’m buying $5 million worth of seeds right now. That lets me track the whole process, if and when we sell the extract to a bigger company. We think that’s a huge advantage. The Targets and the Walmarts of the world don’t necessarily want to put CBD coming from China on their shelves. We have a huge differentiation with that visibility. CBD and other cannabinoids are going to develop much faster than legal THC. THC will catch up over time, because it’s more than just the party aspect—there are medicinal benefits as well. We’re just scratching the surface of all the possibilities.

SND: Compared to the Canadian companies, Vertical seems to be much more focused on outdoor grows than greenhouse grows. Is that correct?

Wallin: For hemp, for sure. With 2,500 acres, we’re talking about a massive amount of space dedicated to this. We’re also doing big-time outdoor grows in California. Santa Barbara County is the only county that removed the cap on the number of licenses, so we have hundreds of licenses that we’re able to use to grow outdoors. And there’s something to sun-grown organic flower growing in the wine country of Santa Rita Hills in Santa Barbara that, from a marketing standpoint, can win over a lot of consumers, even though you don’t have as much control as you do indoors. I can grow a pound of cannabis in our outdoor grows for probably about $75. A greenhouse is probably around $400, and an indoor grow is probably $550 due to the infrastructure. So the competitive landscape and the scaling of brands is going to drive more outdoor grows.

SND: How is the development of cannabis beverages progressing?

Wallin: We’re working with some of the best flavor houses in the beverage industry who’ve done many brands with me in the past, focusing first on CBD. That’ll be first out of the chute for us. We’ll have a variety of different beverages coming. On the THC side it’s more complicated, but we think if we can get CBD right we’ll get THC right too, concentrating on products that are low-dose, fast-acting, have no calories, and have an onset time similar to alcohol. That could eventually be a multi-billion dollar category.—Danny Sullivan

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