🎙️ Podcast: Jetty Extracts, CEO, Ron Gershoni
🎙️ Podcast: Jetty Extracts, CEO, Ron Gershoni
Canopy Growth purchased an option to acquire 75% of the equity interests in Jetty for ~$69M and another option for the remaining 25% (valuation TBD here).
Company Overview. Jetty is a top 10 cannabis brand in California[1], and a top 5 brand in the Vape Category[2]. Jetty is s a leader in solvent-less vape and a pioneer of extraction-related intellectual property (IP), achieving strong growth over the past two years while generating positive EBITDA amidst the highly competitive California cannabis market.
Background. Prior to starting Jetty Extracts in 2013, Ron was CEO at Lavilin, a line of naturally-derived personal care products. The idea for Jetty Extracts came after his father tried Cannabis for back pain, which motivated him to start looking at the industry from the medical side. At the time, Ron was in Real Estate development and investment, and sold some a property he owned to buy a CO2 machine to try and process different Cannabis into oils—all without a business plan or any contracts. Eventually, they started looking at the cleanest vape possible—others had additives or terpenes from other plants, and Jetty Extracts wanted to make something without any additives at all. He and his co-founders moved headquarters multiple times in the first two years and ended up settling in Oakland in 2015. The Company is still run by Ron and his co-founders and continues to look at growing the products offered (which has a very extensive SKU count). They continue to believe that the biggest opportunity in Cannabis is in branded products and the biggest brands will come from CA.
Growing While The California Market Was Declining. Jetty grew monthly sales by 45%+ from February to March 2022. Jetty will have eight straight quarter of growth in a market that’s down 25–30%+ Y/Y. Ron believes the company is winning on products and innovation.
Innovation from the Illicit Market. Consumers want clean products. Before solventless, Live Resin was big. The lag is typically six months between what is trending in the illicit market and when the legal market launches a similar product. The illicit market is able to quickly to react to core consumer demands given lack of testing requirements. Licensed operators launches products later but gets consistency much quicker, given those same stringent standards. In the early days, Jetty would go from concept to launch in a month, now it’s closer to six months, but is still faster than traditional CPG industries.
Funding. Ron and his father funded the company in the early years—enough for space, a CO2 machine, and products for R&D. They later raised a ~$2M Seed round in late 2015 and a $10M+ Series A in 2019. The company raised a $2M bridge round between the Series A and Canopy’s acquisition.
State Expansion. It’s harder for an extraction company to go into additional states vs. edibles company. While there are several markets that looks exciting, Ron wants to think more about where Jetty wants to be and where the long-term value for the company exists. Jetty previously looked at expanding outside of CA in 2014, and every year since, they’ve had interest but didn’t feel they were quite ready. He has watched companies try to do too many things, too early, and failing. Jetty has stuck to its core—offering high-quality extracts products in California.
Differentiator — Extraction Technology. Jetty has developed industry-leading capabilities in extraction and clean vape technology. As one of the first brands to bring to market a vape free of fillers and cutting agents, Jetty has built on that legacy with the 2021 launch of its solventless vape and concentrate collection, made from just ice, water, heat, and pressure. Their products have received critical acclaim winning Best Vape at the 2021 Cannabis Cup, in addition to consumer success with the top eight solventless vape SKUs in California1 and the #1 PAX® Era® pods brand three years in a row.
Transaction. Canopy Growth will make aggregate upfront payments in the amount of approximately $69M in exchange for ~75% of the equity interests in Jetty (an option). Canopy doesn’t control or run the business, Jetty still own the share but it’s optioned to Canopy. There is also a Revenue multiple applied to performance over the next two years. For the remaining ~25%, the companies will determine the value similar to a a baseball arbitration.
M&A Process. Canopy has been active in California for the past year, and Jetty was in discussions with Canopy while actively watching the Wana acquisition play out. The two parties ended up signing the term sheet in January and closing in May. Canopy and Jetty both shared the view that brands matter. Ron notes that Canopy, through their Constellation Brands relationship, really understands brand. Jetty was waiting to find the right partner and Canopy offered that with the right combination of control and experience as well. Ron ran the process himself and used Raines Feldman as legal counsel for the five months between term sheet and closing. Jetty had already known most of the MSOs and wasn’t running a process when Canopy approached them.
Jetty Extracts Going Forward. Jetty continues to explore additional avenues through which Jetty could bring the brand and its innovative product line up to the Canadian recreational market to fully realize the North American, cross-border potential of Jetty’s industry leading IP. Because of the Canopy relationship, Canada is high on the priority list for expansion. Ron and his co-founders and from NY/NJ, so that makes those market interesting as well.
Brothers (x2). Ron’s brother Eric is the CFO (joined in December 2018). His Co-Founders Nate and Rob Ferguson, are the Chief Product Officer and Director of Operations, respectively. The leadership consists of two set of brothers, so decision-making is similar to a family-owned business.
👋 The Highly Objective Podcast is hosted by Dai Truong, who leads Cannabis Investment Banking at Arlington Capital Advisors.. Third-party information presented here and links to third-party content are for informational purposes only and are not intended as a recommendation, offer or solicitation for the purchase or sale of any financial instrument, security or investment. The information provided is not warranted as to completeness or accuracy and is subject to change without notice. Linking to third-party sites in no way implies an endorsement or affiliation of any kind between Arlington Capital Advisors, LLC, or its affiliates and any third party. The information in this blog constitutes my own opinions (and any opinions posted by guest bloggers from time to time) and it should not be regarded as a description of services provided by Arlington Capital Advisors, LLC or any affiliate.