Key Stats: New Green on Fundanna
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The New Green team has been selected as an “Underweighted Deal” by KingsCrowd. If you have questions regarding our deal diligence and selection methodology, please reach out to email@example.com.
The U.S. market for products made with cannabidiol (CBD) is expected to grow at a nearly 50% annual clip to almost $24 billion over the next three years. When you include now-legal products that contain THC, the primary psychoactive compound in cannabis that gives users the “high” sensation, the size of this global market is on pace to reach more than $40 billion over the same period.
But the cultivation and sale of hemp-derived CBD products, which contain little to no THC, was federally illegal in the U.S. until the 2018 Farm Bill was passed in December 2018. Government regulatory bodies have struggled to keep pace with this budding industry amid its incredible growth. This has fueled doubt among consumers regarding the quality of untested and potentially ineffective CBD products available at many retailers today.
Meanwhile, in states like Massachusetts (where both CBD and marijuana are legal), entrepreneurs struggle with an often protracted, expensive process of applying for and receiving a retail license to sell cannabis products. Applications submitted by prospective retailers to the state’s Cannabis Control Commission (CCC) can languish for several months before even being granted a provisional license. And only then can those business operators begin building or renovating their respective retail properties. The completion and inspection of those properties serves as a cue for the CCC to consider granting a full license and allow business operations to commence. The full process can take years for applicants to complete.
Unfortunately, the unfavorable economics and time requirements make it difficult to secure financing as well, making the cannabis-licensing process infeasible for all but the most wealthy applicants in Massachusetts.
Enter New Green LLC’s “Devine” retail store, which plans to sell hemp-derived CBD and other health and wellness products while simultaneously developing a new approach for funding and licensing cannabis businesses in Massachusetts.
Devine is currently under construction and on target to open before the end of this summer in Egremont, Massachusetts. Egremont is a small town with roughly 1,200 residents that’s about 139 miles west of Boston. While the town itself is small, it’s also bordered by several other towns including Great Barrington (a city of roughly 7,000) to the east.
Devine, for its part, is physically located along Massachusetts Route 23, providing easy access in a region of the Berkshires that’s relatively popular with tourists, second homeowners, and “weekenders.”
To combat competition and maximize foot traffic, Devine will place outsized focus on delivering a superior retail experience. They intend to create this experience by selling only the highest quality products while also providing well-trained staff, high-tech multimedia projections, and 3-D art created by local artists. Through the combination of these differentiators, management will aim to create a “forest bathing experience” and “feeling of wonderment” that can be changed daily and drive repeat visits.
“The customer will not know what to expect,” the company teases in its offering statement, “except that they know they will be surprised.”
Devine will also build a website enabling customers to both order online and to pre-order their chosen items for pick up at the store.
Finally, and perhaps most intriguing, Devine submitted a license application to the state’s CCC in November 2019. As such, by combining this crowdfunding initiative with commencing operations as a CBD and health & wellness products retailer upon completion of its initial construction this summer, the store can help New Green circumvent the key financial- and time-related challenges faced by other prospective CCC licensees.
New Green is led by husband and wife management team Ari and Dr. Heidi Zorn, who have lived in the Berkshire region of Massachusetts for the past 25 years.
Ari most recently worked for 13 years as the owner-operator of personal training studio Zorn Core fitness, as well as the former owner and chef at popular local Mexican restaurant Dos Amigos. He has held various community positions including at Egremont Land Trust and the NAACP. He is affectionately known in the town of Egremont as “turtle man” given his conservation efforts at a local pond.
Heidi has owned and operated her own private chiropractic practice, Zorn Family Chiropractic, for the past 14 years. She has taught multiple health, fitness, and sport psychology courses at Berkshire Community College and held several community positions as well including Egremont Land Trust and the Eagle Fund.
New Green has no operating history to date, but also has no debt. The company has relied so far on $30,000 in self-funding raised this year to build its website, secure real estate, and to cover accounting and other startup expenses.
New Green is aiming to raise a minimum of $10,000, and a maximum of $500,000 at a pre-money valuation of $3.275 million. Assuming it can reach the high end of that range, New Green would dedicate 30% of its raised capital (before offering expenses) to retaining and hiring staff, 20% to salaries, 20% to completing the buildout of the physical location, 5% to marketing, 3% to goods and products, and the remainder to a combination of rent, travel and events, legal costs, and general company expenses.
After careful consideration of its areas of opportunity and potential weaknesses, we’ve ranked New Green LLC as an Underweight deal. Potential investors should keep in mind several key risks as they evaluate this deal:
- “Inexperienced” management team: The Zorns boast over 40 years of combined experience in nutrition, health, and wellness, as well as an admirable respect for the environment, nature, and their community. All of that could lend itself well to the CBD and cannabis industries. But they specifically lack retail experience, and investors would do well to tread lightly until we have more tangible evidence of their effectiveness to that end.
- Crowded, competitive market: As of the end of April 2019, the Massachusetts CCC has already approved 382 total cannabis license requests, including 36 licenses in the Berkshire region alone. While New Green appears to have taken all the proper steps so far to join the list of formally licensed cannabis retailers, the sheer volume of similar competitors raises the question of whether Devine might prove to be “just another cannabis retailer” among many in the state.
- Limited reach with no proven product: In addition to planning operations for only one store in a very small town — however well-situated — New Green’s Devine retail location has yet to prove itself as a viable retail concept. Customers might well react positively to Devine’s focus on high-quality products, environmental friendliness, unique 3-D art and its high-tech “forest bathing” projections. But we can’t ignore the risk that its differentiated retail experience simply might not live up to management’s vision. If Devine doesn’t win the hearts of passing consumers who might be content to purchase their CBD (and, down the line, cannabis) wares elsewhere — and without plans to franchise the concept on a broader scale — the store concept could fail.
New Green LLC is taking a unique approach to solving the time-related and financial challenges facing hopeful cannabis and CBD retailers in Massachusetts. However, it has a narrow scope with a single retail location in a crowded market. Pairing this with a lack of managerial experience and no proven operating history, we believe New Green LLC is an Underweight deal.
About: Steve symington
Steve Symington is a Lead Advisor at 7investing Group, and previously wrote thousands of articles on publicly traded equities, personal finance, and investing while serving as an analyst for multiple real-money portfolio services at The Motley Fool. He holds a degree in Computer Science (with an emphasis in software systems and mathematics) from the University of Montana, and previously worked as a software engineer implementing machine-learning algorithms primarily for military and government clients.