Essential Business Label For Cannabis Validates Industry, Dixie Brands CEO Says

At the onset of the coronavirus pandemic, many cannabis companies were allowed to operate as so-called "essential businesses" — at least in certain markets.

This classification was a big moment for the marijuana market, according to Dixie Brands CEO Chuck Smith.

"This has provided material validation for our industry, for our consumers and of course for our team," Smith told Benzinga.

"Dixie has been operating for over a decade and such a public acknowledgement of the important role of the cannabis industry signifies for us a big step towards normalization across the country."

Cannabis companies hustled to shift their business model to accommodate customers with either curbside pickup or home deliveries. Still, many players in the space couldn't squeak by unscathed.

Many companies opted to furlough employees, close stores and cancel M&A deals. And even though cannabis is medically legal in 33 states plus Washington, D.C. — and permitted recreationally in 11 of those states — it's still considered entirely illegal by the federal government. As a result, pot entrepreneurs have been unable to tap financial aid.

Dixie Brands Sets Sales Record During Pandemic

Tough times got tougher. Dixie Brands rolled with the chaos.

"March was a record sales month across all six states and across all core product segments — gummies, beverages, mints and chocolates," Smith said. "April started a little slower due to the pipefill, but started to pick up in the second half."

Markets like California and Oklahoma performed well, and the momentum is "continuing into May," he said.

Like other companies, Dixie has also been dealing with social distancing regulations, which have "undoubtedly increased the complexity in recent weeks," Smith said.

"Our compliance team has revised several of our SOP’s and with all non-essential personnel working remotely, we’ve focused our attention on the safety, education and productivity of our production and logistics teams," he added.

The Denver-based company, known for making THC-infused "Dixie Elixirs," mandated personal protective equipment and issued flexible working hours as well as sick leave policies.

"We have extended the same focus on safety and communication to our customers and consumers, utilizing customer, budtender and consumer surveys, email and phone outreach — all to ensure we’re providing what everyone needs, when and most importantly, how," Smith said.

Dixie Brands, BR Brands Deal Awaits Approval

On top of all that, the Denver-based company is tasked with wrapping up a $43-million reverse takeover with BR Brands. The two companies announced the deal back in March, just before many of the shelter-in-place and quarantine provisions were put in place.

"Despite the unforeseen hurdles of today, both teams are continuing to operate and work diligently together to advance to closing," BR Brands chair Andrew Schweibold says.

"While we are awaiting shareholder and regulatory approvals, we have already initiated certain integration efforts across both companies’ portfolios to begin capturing early synergies for all stakeholders."

While it's too early to speak to whether there will be overhead reductions, Dixie Brands' Smith says he looks forward to the "combined force of talent."

Several COVID-combinations have occurred among cannabis players. Edison Nation agreed to buy HMNRTH Nutraceutical's line of CBD products; Harvest inked an $85.8-million deal with Interurban Capital Group Inc.; and Driven Deliveries completed a deal for Budee. 

Whether Dixie and BR close their transaction in the third quarter as planned remains to be seen. But until then, Smith is optimistic.

"In times of imbalance, you ultimately need rationalization to reset and level set the industry," he said. "And from those shakeouts emerge the key players that will command the next phase of growth in the industry."

Courtesy photo.