Diego Pellicer Worldwide Inc DPWW is a real estate and consumer retail development company in the cannabis industry. You might have seen their cool, fancy stores if you’ve ever been to Seattle or Denver, or maybe heard about the company’s $3,600 weed cigar.
Benzinga recently had the chance to chat with the company’s CEO, Ron Throgmartin, and shoot a few questions his way.
Meet Diego: He’s Not Your Gardener
We first asked Throgmartin to walk us through what the company does.
“Since marijuana is still federally illegal, it is of our opinion at Diego Pellicer that it is not prudent at this time to directly profit from the sale of marijuana. When this model was created, we knew that we had to create it in such a fashion that the profits from marijuana would not directly flow to the company. So, at its core, we are a real estate company,” he said.
“Now, once you start with the foundation and you start building the model, that’s when the extra value components of our model come into place. For example, we’ll go into a state like Colorado and we’ll seek out operators, state-licensed, compliant marijuana retailers or producers that we believe shares our vision of quality and customer service,” he continued. “Once we’ve located an operator, we sign an agreement that looks a lot like a franchise agreement.”
One of the most important things Diego Pellicer offers is funding, which is fundamental to the cannabis industry, because national banks like Wells Fargo & Co WFC or Bank of America Corp BAC will not provide it. In most cases, regional banks will not engage in business with marijuana companies either.
“When you take out the ability for an independent operator to get traditional small business funding to grow his business, his growth is very limited,” the chief executive pointed out. “So what Diego does for that operator is fill that void [...] We’re willing to offer you the funding you need – depending on state law, we’ll help you secure a new retail location, we’ll do the build out, we’ll license them to use the brand.”
“We’ll then build out all those costs and amortize them over the length of their initial lease, which is usually 5 years,” he added.
Crunching The Numbers
Diego Pellicer charges a 31-percent markup on any operation it completes. What customers do is pay out the money the company provided plus a 31 percent markup over five years. That’s the lease.
“On the surface, people look at that and they’ll think that 31 percent is a very high-interest rate. But it’s really not,” Throgmartin said. “If you understood this industry, what these operators are accustomed to being involved in is approaching venture capital guys or private investors within their state; in most cases, these people provide funding but also end up taking the lion’s share of the business. So, even though the interest rate seems high, when you look at it over the course of the day-to-day operations over year to year, our transaction is a much more appealing transaction for the operator — not to mention we offer things then to the operator that an investor can’t.”
Simply put, Diego Pellicer works like a REIT like Innovative Industrial Properties Inc IIPR. However, the twist they offer is the property lease comes with branding, promotion and proven executive management team that takes care of quality control, inventory purchasing, strategic planning, new store development and floor planning for all non-cannabis products.
“Accessories, pipes, t-shirts, hats, rolling machines, whatever the non-marijuana product is, we will provide that inventory for them and floor planning and they pay us back as they sell the inventory,” the CEO continued.
“Then there is the final piece, which to me is the most important, which separates us from all the other publicly traded marijuana companies that are in the marketplace, whether it’s Terra Tech Corp TRTC or Medical Marijuana Inc MJNA, is that, where it’s allowed by state law, we will enter into what we call a future acquisition agreement. Basically, what we’re saying to this operator is, in the future, when marijuana becomes federally legal or we get direction from the federal government, guidance that says interstate commerce is now permitted for marijuana, we have the right to buy you and roll you up into Diego Pellicer Worldwide, basically providing you with an exit strategy after a few years of enjoying all the profits of your hard work at a reasonable cost of capital. And we negotiate that price upfront.”
The Q&A
Benzinga: Do you have any plans to uplist anytime soon, meaning trying to get into the New York Stock Exchange or the Nasdaq?
Throgmartin: Yes, absolutely. As a matter of fact, it is part of our model. It’s very difficult, as we all know, for a marijuana or a marijuana-related company to uplist, not to mention there are significant requirements to be qualified to uplist.
Investors should note that we’re not a Pink Sheet company; we’re an OTCQB company, so we are filing with the SEC. I believe that as people become more comfortable with the industry and more comfortable with the companies that are involved in that industry, and distinguish between the ones that have the best model, those stocks will be successful and be put in the position to uplist. Obviously, I believe Diego Pellicer is one of those stocks.
BZ: Like many other cannabis stocks, Diego’s started the year very nicely. But, since late January you have been on a downtrend. Moreover, the past year has seen the stock tumble significantly. What do you think is going on?
Throgmartin: That’s a great question, but it’s difficult to answer. I really do not get caught up in the stock price, even though as a CEO it’s my responsibility to be a good steward of the company and the investors within that company. But, I really do not get tied up in the stock price, nor do I predict what will or won’t go.
I’m a firm believer that as long as Diego Pellicer does what it’s supposed to do and it becomes profitable and it lays out a clear, precise strategic plan for the future and how it plans to move forward, that investors and analysts within the market will reward the stock accordingly. As far as I’m concerned, when I look across the horizon at other publicly traded companies that are similar to ours, I believe that we are in probably the best position to accomplish those tasks than any of the other companies.
There again, the reason I based that on is by our model, and more importantly, real estate at the core, accessory and its additional profit centers within the stores, and then you add future acquisition agreements, which ties the store into the future legalization of this industry, which is why most investors are looking at this space. All those components, in my opinion, make us a very appealing company to be involved with.
BZ: Do you have an estimate timeline to reach profitability?
Throgmartin: It appears by our projections that, by the end of the second quarter to the beginning of the third quarter of this year, Diego Pellicer should be cash flow positive.
I can tell you, within the space, that’s an exciting event. There are not a lot of companies that can make that statement.
BZ: Do you have any plans to raise capital anytime soon? Are you comfortable with your cash position? What about debt?
Throgmartin: I feel very comfortable with our existing debt structure, which anyone can review on our [SEC] Edgar filings.
We have several projects in the pipeline that will require funding, so we will be raising capital. Quite honestly, I see us raising capital for the near future because we have a lot of opportunities and we intend to pursue those opportunities as rapidly as we can.
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