CBD Company Kadenwood Brands Bets on Vertical Integration for Long-Term Success


Exclusive Interview with Kadenwood Brands Co-Founder and CEO Erick Dickens

Kadenwood Brands has two sides to its business: consumer brands and bioscience. Through the recent acquisition of EcoGen Laboratories, the company has become vertically integrated. Co-Founder and CEO Erick Dickens spoke with New Cannabis Ventures about developing the company’s brands, the importance of vertical integration and funding. The audio of the entire conversation is available at the end of this written summary.

Consumer Goods Experience

Dickens had a career in the Army, flying Blackhawk helicopters and reconnaissance planes, before shifting tracks and entering the consumer goods space. He has worked with companies like Kraft Foods, Henkel and LifeLock. Most recently, he was the Chief Marketing Officer for King’s Hawaiian.

While coaching Little League, he started to have a conversation about the CBD space. Eventually, he and fellow co-founders Brian Newberry and Doug Weekes formed Kadenwood Brands. Chief Strategy Officer Newberry has a background in financial technology and the hemp industry. Chief Operating Officer Weekes previously headed up the beverages division at Kraft, actually hiring Dickens out of the military.

Executive Chairman Todd Davis was the Co-Founder and CEO LifeLock. He guided the company through its IPO and its $2.3 billion sale to Symantec.

Vertical Integration

Kadenwood Brands is headquartered in Newport Beach, California. It also has farming operations in the state through a joint venture with Munger Farms. With the acquisition of EcoGen, the company also owns farming operations in Grand Junction, Colorado.

The Kadenwood Brands Headquarters in Newport Beach, California

While some other companies in the space have decided against vertical integration, Dickens sees it as an advantage due to quality control and cost of business. Right now, CBD prices are high compared to other consumer products, but Dickens sees consumer and retailer demand driving that price down over time. When that happens, he expects companies that rely on third-party suppliers will struggle to compete with those that are vertically integrated.

Inside the EcoGen Facility, Recently Acquired by Kadenwood Brands

Market Reach and Distribution

The company has a national reach with its consumer products. On the bioscience side of its business, it uses the product it’s producing in its own goods and sells to customers in the U.S. Europe and South America.

Right now, the company is focused on opportunities primarily in the U.S. Its consumer goods products have a direct-to-consumer presence, but the company is working on growing its retail distribution. It has products in grocery retailers, including Food Lion, Giant, Hannaford and some other grocery retailers in the Northeast. Kadenwood Brands has plans to expand to other national retailers this year and into 2021, according to Dickens.

The company was not heavily focused on national retail when the COVID-19 pandemic began. Many brands that were in retail outlets struggled, as consumer buying patterns shifted, according to Dickens. Now, that trend is shifting.

Kadenwood Brands has seen an uptick in its direct-to-consumer business, but in the early days of the pandemic supply chain disruptions presented a challenge, which the company has since overcome.

Brand Portfolio

Right now, the company has two main brands: Level Select CBD and Purity. Level Select is a performance-based brand. A number of celebrity athlete ambassadors support the brand, including former Los Angeles Dodgers player Steve Garvey, former NFL quarterback and Heisman Trophy winner Carson Palmer, PGA Tour champion Rickie Fowler and Ann Meyers-Drysdale, the first woman to be inducted into the NBA Hall of Fame.

Level Select is Kadenwood Brands’ Performance-Based CBD Brand.

The Purity brand has a number of different varieties. Purity Organic is largely reserved for food and beverage items, while Purity Preferred focuses on the pet market segment and Purity Self addresses personal care.

Former Surgeon General Richard Carmona, MD, MPH, and Aaron Przybysz, MD, PhD, help to guide the company’s product development, particularly sharing insight into the necessary CBD levels for product efficacy.

Kadenwood Brands also helps its brands stand out in the competitive CBD space through advertising. The company has more than 50 percent of the voice in the CBD industry through its advertising efforts, according to Dickens. It also has plans to announce a significant media deal with a major network in the near future.

Regulatory Landscape

The company is encouraged by signs from regulatory bodies, according to Dickens. Kadenwood Brands has direct conversations with regulators to ensure it can help offer support in policy decisions and be prepared for any regulatory changes.

Funding

Kadenwood Brands initially sought to raise $10 million through its Series A, led by Executive Chairman Todd Davis. The company ultimately oversubscribed the raise at $15 million. It also did a Series AA targeting $7 million. This round was oversubscribed at just under $10 million. The company now has the ability to raise the limit on its Series AA to $15 million, according to Dickens. This will help to support the growth of the EcoGen asset and the building out of inventory and retail operations.

Of the capital the company has raised thus far, it has deployed roughly $18 million, according to Dickens. This has primarily gone to consumer advertising, building out the company’s team and investment in new product SKUs.

The company is now gearing up for its Series B. Though some companies are interested in working with SPACs, Dickens does not see this route for Kadenwood Brands. Rather, he sees the company working with institutions. Thus far, it has attracted high-net-worth individuals and family offices. A few institutions participated in the Series AA round as well.

Growth in 2020 and Beyond

When raising its Series A round, the company forecasted $30 million in revenue for 2020. Kadenwood Brands made some adjustments to manage challenges, such as price compression on the bioscience side of its business, and it will slightly over-deliver on its revenue expectations for the year, according to Dickens.

In 2021, Dickens expects the bioscience side of the business to remain  relatively flat, while retail expansion and new customers attracted by national advertising will be major growth drivers.

Product repeat is one of the company’s key metrics. A significant indicator of a successful company is the ability to generate repeat customers, and Kadenwood Brands has a repeat rate of nearly 40 percent, according to Dickens. The company is also focused on delivering contribution margins to generate cash and continue investing in the business.

Like many companies, Kadenwood Brands is challenged with scaling to match the growth opportunity in the industry. The company is focused on developing the infrastructure it needs for product manufacturing consistency on the biosciences side and expansion on the consumer products side.

To learn more, visit the Kadenwood Brands website.

Listen to the entire interview:

https://w.soundcloud.com/player/?url=https%3A//api.soundcloud.com/tracks/898954690&color=ff5500

Kadenwood Committed to Improving Its Brand and the Industry


Newport Beach, Calif. – Kadenwood LLC is quickly establishing itself as one of the largest U.S. vertically integrated suppliers of hemp-based CBD.

Kadenwood last month boosted its capacity to produce high-quality hemp-delivered ingredients and raw materials with the acquisition of EcoGen Laboratories, a large-scale manufacturer using hemp grown with sustainable farming practices. With the deal, Kadenwood aims to advance its mission of elevating the CBD industry and bolstering consumer confidence in the wellness category.

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Kadenwood Buys EcoGen, Aims To Become Largest Supplier Of Hemp-Based CBD


Consumer CBD brand Kadenwood has aquired EcoGen Laboratories, a manufacturer specializing in hemp-derived CBD.

The deal, Kadenwood said, grants the Newport Beach, California-based startup ownership of all stages of product development, from the genetic makeup of seeds to the potency of the final product on store shelves.

The price tag of the deal was not disclosed.

EcoGen generated over $63 million in revenue last year through sales of its CBD materials to white label brands.

Kadenwood closed on $15 million in capital earlier this year and is raising a Series B funding round at a $180-million valuation. The company expects to reach $30 million in revenue by the end of 2020.

Kadenwood CEO Erick Dickens spoke with Benzinga about the transaction, what made EcoGen a valuable target, the company’s advertising goals and whether there will be more M&A on the horizon.

BZ: What makes the EcoGen acquisition crucial at this time?
Dickens: Kadenwood is determined to be the industry’s leading vertically integrated consumer goods company, and the EcoGen acquisition completes our genetics-to-shelf capability.

There were plenty of potential targets for Kadenwood. The EcoGen brand is known globally for providing exceptionally high quality isolate at competitive pricing. EcoGen is recognized as one of the early leaders of CBD processing and is the only major processing company not to experience a bankruptcy filing this year.

Was the deal impacted by the COVID-19 pandemic?
No. The deal was negotiated privately by both companies and nothing related to the pandemic impacted the transaction. Kadenwood was introduced to the EcoGen leadership after withdrawing a bid on another company with a similar capability. The Kadenwood and EcoGen principals negotiated and closed the deal directly.

How is the CBD industry rebounding from the effects of coronavirus?
The industry is experiencing a resurgence of growth both on the consumer goods and ingredient sales sides of the business as economic stability returns. There is a great deal of consolidation starting, as some early movers in the industry faced a cash crunch as a result of the economic turmoil caused by the pandemic.

The companies with strong leadership, solid business models and access to cash are able to lead the industry forward.

In what ways is Kadenwood elevating the CBD space?
In addition to leading the industry in quality and ingredient source transparency, Kadenwood is providing much-needed consumer product advertising and education. Already the industry’s largest national advertiser, Kadenwood is set to increase advertising spending to help educate consumers by over $10 million annually.

How does the EcoGen deal illustrate its efforts?
EcoGen is the quality and cost leader in CBD ingredients. The EcoGen deal makes Kadenwood the largest vertically integrated consumer products company with full control over genetics, seeds, farming and processing of the CBD ingredients.

What’s next for Kadenwood?
Kadenwood will continue to grow consumer awareness and household penetration of its Level Select and other consumer products. Kadenwood is committed to creating and building the leading consumer brand in the industry. Kadenwood is [also] currently exploring additional brand and biosciences acquisitions to improve our capabilities and portfolio consumer product offerings.

There are several quality companies in the industry that may be unable to survive without scale. This will lead to more M&A as industry consolidation continues. 

Private Company Showcase: Kadenwood Holdings


We hosted Erick Dickens, CEO of Kadenwood Holdings, at a virtual fireside chat this week as part of Needham’s Private Company Showcase Series. Kadenwood is a privately held, CBD focused company, founded and run by a team with decades of innovation and marketing experience running large, well-known consumer brands. Our overarching conclusions from this event are that 1) category growth rates should remain exceptional, but expect a high level of capacity exit with category ‘winners’ likely emerging over the next 12-18 months. 2) DTC (online sales direct-to-consumer) sales might be sufficient to stabilize operations for the larger CBD players, but the category winners will likely be determined at retail.

Poor CBD category performance in ’19 at retail means that brands without the marketing dollars to support advertising and promotion are unlikely to achieve distribution. 3) The 2018 Farm Bill created a hemp and extraction boom in early ’19 that resulted in a bust by early ’20. Lack of quality biomass and extraction capacity will likely be an issue not resolved until at least ’21.

What do we think Kadenwood is doing differently / where will it fit into the CBD category?

  • Experience doesn’t ensure success, but it increases the probability of success materially: The company was founded by a team with significant experience in branding and marketing at large CPG companies. We think the depth of this commercialization and category development experience will set Kadenwood apart among retail merchants that were burned by weak product performance in a high growth category in the 1st wave of CBD products sold.
  • Level of marketing spend: Kadenwood already spends the most on advertising in the CBD space, which helps with brand awareness, drives revenues in its DTC business, and increases interest from big box merchants. National reach radio and athlete endorsements helped increase brand awareness in 1H. A $10mn deal with a major media company for a national TV campaign later in ’20 will represent a material step up in spend and will likely continue to separate Kadenwood’s brands from competition.
  • Vertical integration limits business risk related to ’boom’ and ‘bust’ reverberations in farming and extraction: Over the near-term, inconsistency in production and ingredient quality provide an opportunity to vertically integrate the supply chain. While the overarching focus is on building brands, Kadenwood is in the process of acquiring assets that will enable them to control everything from seed to shelf (proprietary genetics, farming, extraction, production and then sale through its DTC channel or retail). While we do not expect the CBD category to be vertically integrated over the long-term (virtually no CPG businesses are), this will likely be a cost advantage over the near-term, or at a minimum, shifts or mitigates 3rd party supply chain risk to something under Kadenwood’s control. Despite declines in the price of hemp biomass and isolate, CBD is still the most expensive input. Owning the supply chain could materially lower production costs and provide margin cushion should category price points continue to fall, or provides flexibility to invest in promotional spending to support its brands at retail.

At present the CBD category is high growth, but highly fragmented; a wave of consolidation and marginal capacity exit of brands is very likely to occur. We [Needham] estimate that U.S. hemp derived CBD sales were $1.8B in 2019, will likely reach $3-3.5B in 2020, and the category in the U.S. will likely exceed $10B by 2023. Kadenwood expects the U.S. CBD category will reach $15-20B by 2025. Globally, the size of the CBD category is difficult to forecast because of regulatory differences and potential changes to those regulations, channel development, use cases, and customer acceptance of the category. Per Brightfield Group, there over 3,000 companies selling CBD in the U.S. today and 90%+ of these companies have annual revenue <$1mn. It is extremely unlikely that the vast majority of these brands are profitable or have prospects of being profitable with revenue at the <$1mn level, and we expect many, if not most, of these small brands will likely exit the category. By comparison, Kadenwood’s DTC business is “in the multi-millions” and topline revenue is on pace to be “in the tens of millions” in ’20. Disruptions related to COVID are likely accelerating the pace of consolidation / marginal capacity exit.

Early stage industries often experience growing pains along the supply chain and the CBD category is no different. In the U.S., the 2018 Farm Bill allowed farmers to grow hemp for the first time in decades. In 2019, ~500k acres of hemp were licensed, 230k were planted, 125k were harvested, and underlying demand was probably 25-50% of harvested acreage. This overplanting caused biomass prices to drop from >$35/lbs in late ’18 to <$8/lbs in ’19. The company expects a reduction in planted and harvested hemp acreage in ’20, but thinks it could be a few years before larger efficient farmers stabilize pricing and increase quality. Despite significant investment in processing capacity in ’19 by the industry, demand didn’t materialize and much of the investment in extraction equipment never came online. As such, processing will likely remain a choke point for the industry. Large CPG companies are not involved in the category right now, and are unlikely to enter until regulatory clarity is provided by the FDA.

Larger CBD companies have found most success with a DTC model (direct-to-consumer), while product sold at retail has generally not fared well. Early mover brands that achieved retail distribution generally failed to invest in advertising to build the brand or support the product on shelf, and as a result, the early mover brands haven’t lived up to the expectations of retailers. In some cases, when the product performed poorly, the merchant or retailer mindset was often to replace a poorly performing product line with a new product line with the same lack of brand support. Retail closures related to COVID stay-in-place orders and limited consumer desire to leisurely shop likely exacerbated CBD category issues in retail. Of the larger national or regional big box retailers that carry CBD, we‘d estimate that the majority of distribution is with fewer than 20 brands. As poorly performing brands are replaced with fewer, but better supported product lines, we would expect Kadenwood to be among those best positioned to gain distribution with these retailers.

Lower price points and higher levels of ad spending are critical for mass adoption. Kadenwood sees a declines in retail unit pricing and higher levels of advertising spend as critical to drive package velocities to levels that where retailers would keep the product on shelf. Advertising and marketing are needed to educate consumers and build awareness. National reach radio has been an effective medium for them in through ’20, but expects to have a $10mn national TV campaign later in the year. Price points at retail will need to be sub-$40 to make it on the shelf with most major retailers (need both entry priced product for trial, and larger pack sizes for repeat), with most retail pricing likely to fall in the $10-25 range over time.

FDA guidance remains an overhang and will likely limit growth of non-topical product. The lack of clear guidance from the FDA puts the onus on the consumer to figure out what is appropriate on their own. For now, the industry needs to continue to invest in research on CBD and use this to help inform the FDA to shape policy. Over time, the company expects the FDA to issue guidance on dosage on ingestible CBD, but expects this guidance to likely be several years out. Kadenwood has Former Surgeon General Dr. Richard Carmona on its medical advisory board. On the margin, this affiliation likely helps to shape internal product development and formulation, lends credibility to the brand in terms of quality, and will likely be an important voice as regulators assess rules for the category.

Review: We Tried Level Select CBD Sports Cream


Minty products are 100% my thing. Before the beautiful array of cannabis products available to us, CBD or otherwise, I always experimented by combining the amazing, soothing powers of mint and weed.

Many pain relieving topicals are on the market, and their style can range from sprays and gels to creams and salves. Each one has their place and use depending on the type of pain you’re deploying it to, but this Level Select Sports Cream approaches things from a multi-step angle, so you can grab the product that is right for your concern. 

Similar to Mineral Ice, Biofreeze or Icy Hot type products, but super-charged with CBD, I tried Level 2. This level is a 600mg CBD formulation, with potent mint and menthol in a creamy base. The formula sinks in quite well, and the smell doesn’t linger long enough to reek like medicinal cream, but the cooling effect stays for a good stretch of time.

Since these products are in three “levels” of CBD strength, the lower levels are good for soreness and general aches, whereas the higher levels are more suited to moderate-to-severe pain issues. The 600mg Level 2 formulation worked decently on an injured neck, providing enough temporary relief to continue working, and knocked out post-gym soreness pretty well. 

Having not tried Level 3, I can’t speculate, but it seems like it would be a more appropriate choice for serious pain, while the 600mg Level 2 was only a temporary relief.

This brand claims a full spectrum and nano CBD mixture, and is lab tested. And while many brands label “no THC” as a boon, as a cannabis advocate it’s actually a strike—minuscule amounts of THC should be present in full spectrum cannabis oil, even hemp. 

While we understand people’s fear of drug testing and intoxication, neither can occur through the use of topicals, so when brands indulge in that fear versus educating consumers, it only continues the divide that delays access to others.