John SchroyerRIV Capital (CSE: RIV) (OTC: CNPOF) CEO Mark Sims says he’s still plenty optimistic about the company’s outlook in New York state, despite controversy swirling around its acquisition of Etain last month and a push by some of the company shareholders to replace him and several other board members.
Sims oversaw the Toronto-based company’s purchase of Etain, one of the original “registered organizations” in New York that is still licensed to sell medical cannabis, for $42 million in cash and 5.2 million shares of RIV Capital stock.
Though that was far less than the originally agreed-upon purchase price – RIV took a nearly $139 million write-down on the deal in November before it closed in December – several RIV Capital investors were not happy with the purchase due to uncertainty for “ROs” such as Etain in the New York market. Of particular concern: Etain and other medical marijuana licensees will be mostly prohibited from engaging in the recreational side of the industry for another three years.
But a key strategic point that has Sims still bullish on the state is that Etain – and the other nine ROs – will still be able to build individual brand awareness with customers via wholesale deals they’ll be allowed to strike with both cultivators and processors, as well as with out-of-state brands that have a solid track record of performance in competitive markets like California and Colorado.
“It actually fits pretty well with our strategy,” Sims told Green Market Report. “A big part of our strategy is building brands.”
That was always going to be the path to success in New York because any licensee will ultimately only be allowed to own a maximum of three stores in the state, Sims said.
To have real market penetration, he said, companies and brands need far more access than just three shops out of a thousand. That’s where brand building comes in, and it’s a strategy that Sims said he’s already been sharing with some licensed cultivators and processors in New York.
“We definitely want our three retail stores, but that’s not the way to build a brand in a market as large as New York because now you’re really limited to where consumers can buy,” Sims said. “We are already planning to fully embrace the wholesale side of things and be that trusted supplier. … As soon as the (New York Office of Cannabis Management) says, ‘OK,’ which is directionally this summer, we will get (Etain-branded products) on the store shelves.”
A special meeting requested by RIV Capital investors at which Sims could be possibly ousted won’t be held until June 6, so he and the other four board members who could lose their positions have about five months to sell their strategy to RIV shareholders.
