​California Green Tree Gives Investors Early Shot at Promising Cannabis Grower

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Ever since the “green rush” started gaining momentum with the nationwide swing to a favorable bias towards cannabis a few years ago, analysts have been tossing out figures for tremendous industry growth. With more states legalizing marijuana in one fashion or another, it’s been a dynamic target, to say the least, but no one knows just how big or how fast the industry will grow. The other shoe dropped when California legalized recreational marijuana during the November 2016 vote, which will provide more clarity on market expansiveness.

Come the first of 2018, both medical and recreational cannabis will be available in the populous state, which has an economy worth more than all but five countries in the world, inevitably provide a massive boom to industry sales figures, which totaled $6.7 billion in 2016.

According to real estate developer and investment banker Marshall Field, the California cannabis market is going to experience a shortfall in producers once new laws go into effect next year due to sheer demand and strict quality control. To that end, Field partnered with Coalinga, CA real estate mogul Rito Gutierrez to form privately-held California Green Tree Development LLC (CGTD), assuming the roles of CEO and COO, respectively, to turn their attention to the market opportunity in their state.

To lend some color, consider that Colorado, which has a population of about 5.5 million, had over $1 billion in legal marijuana sales in 2016. In Oregon, population 4.0 million, legalizing recreational marijuana has reaped a windfall for the government, with sales blowing past expectations in 2016 to yield $60.1 million in tax revenue from recreational marijuana ($250M+ in sales by our conservative estimate). Washington, population 7.2 million, topped $1 billion in total sales since legalizing marijuana in 2014, including $410 million in 2016 sales.

California Green Tree from COPRO STUDIO on Vimeo.

The possibilities for California – a state with roughly 40 million residents, about 2,800 cannabis dispensaries and more than $800 million annually in sales of medical marijuana already – are enormous based upon the successes of other states with recreational marijuana. Medical marijuana has been legal in California since 1996. Analysts and regulators alike think that taxes from marijuana sales – taxes, not statewide revenue – could reach $1 billion annually when recreational marijuana is available, speaking clearly about the potential market size.

“New rules require that growers pass quality and cleanliness testing, which will eliminate a percentage of growers at a time when demand and dispensary volume is exploding” Field told Equities.com. “Our plans are to capture substantial market share through cultivation of a portfolio of organic cannabis strains free of synthetic fertilizers and pesticides in a state-of-the-art facility. We don’t have any concerns about regulatory issues.”

To meet these goals, Field says that they are leveraging his and Gutierrez’s extensive property development (which, incidentally, has included developing a major greenhouse in Canada) and banking experience and network connections in combination with contracting the top cannabis greenhouse builder/designer in the country. In January, the company received its requisite licenses from the city of Coalinga to construct a 20,000-sq. ft. greenhouse and put the business model in motion. After buying a 2.3-acre lot in April, soil work is underway followed by grading, with expectations for the facility to be fully operational in January 2018, with the company’s first revenues no later than April.

The company is differentiated by the successful backgrounds of its leadership outside the cannabis industry. “This is a sophisticated program with a well-defined business model that we are moving expeditiously forward, not a mom-and-pop grower,” said Field during the call. While the first facility is now underway, Field says the intention is to build up to four facilities, for which he already has the license in hand for a second location.

Capacity at the first facility is approximately 15,000 pounds annually. Based upon a current pricing structure, CGTD equates that to about $15.1 million in revenue in the first full year of operations.

The company is aiming to build out a turnkey cannabis cultivator with complete infrastructure and a popular brand, already coined “Happy.” Vertical integration is also part of the strategy, meaning that CGTD intends to expand into the extraction business for edibles and oils in addition to its flagship cultivation business.

Field says he’s very comfortable with the idea of the brand taking off based upon ongoing marketing and sales discussions with dispensaries and industry players. “We’ve been pleasantly surprised by the outreach from many channels interested in our product already because we’ve made it clear that we are going to establish Happy as the go-to quality brand, including clear labeling of THC content. There will be no guessing, which is something dispensaries and consumers want.”

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As the legal cannabis market matures, major companies, albeit in the tobacco, retail, investment or other space, are going to want to get in on the business. They tend to steer clear of the nascent industry presently because marijuana remains illegal at the federal level. In the end, though, it’s simply too large to ignore. Keeping the exit strategy topical, Field cited how Amazon.com (AMZN) offered to pay $13.4 billion for Whole Foods Market (WFM) recently. Buying a company with a brand, real estate, infrastructure, management, etc. is a far easier method for immediate market penetration rather than trying to overcome barriers to entry independently, as Amazon was learning with its “Fresh” initiative.

He envisions building California Green Tree into a company with all those qualities that would make it an attractive target for a larger company wanting to immediately have a cannabis market presence. Field envisions at an exit strategy timeline of approximately five years.

The company is going the crowdfunding route to raise capital that is becoming more and more common amongst start-ups. They’re offering to give 18% of the company to investors and have already raised about $700,000 on Equitynet.com of an $8 million goal. “Not only do investors get 18% of the company, but they get 18% of the income and that could generate 25 to 35% return on their investment,” commented Field. When factoring in the real estate value, Field estimates the total return to range up to 400% once the developed property is sold.

In this sense, investors get a chance to enter an up-and-coming market at the earliest stage, an opportunity normally only afforded to hedge funds, banks, investment groups, etc. In order to take a stake, investors must invest a minimum of $50,000 and qualify as “accredited.”

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