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Business Observer Friday, Jan. 15, 2021 10 months ago

Medical firm takes curvy road to find right partner

Finding the right business partner can be daunting — and costly if it goes south. A $100 million company’s road to bliss started out with some bumps. 
by: Mark Gordon Managing Editor

Sarasota medical cannabis company AltMed Enterprises had a rough go the first time it entered into a partnership agreement with another company.

Back then, in 2014, the then-new company invested $850,000 in a potential partnership with a company in Arizona, to grow and develop products together. Soon after AltMed cut the check, the would-be partner made off with the money. “That was probably $850,000 more than we really had,” AltMed Founder Michael Smullen recalls. “It was like the wild, Wild West when we started out. We found there are a lot of people in this industry you wouldn’t want to do business with.”

Although in that case AltMed eventually got some payback, when it bought out the company that had taken its investment, the costly be-careful-who-you-partner-with lesson resonated with Smullen and others at the firm. That’s one reason, with one major exception, AltMed has been on its own for six years while it aggressively captured market share in the medical cannabis industry in Florida and Arizona.

‘This certainly has not been easy. There was a lot of times we could’ve just said we’re going to pack it in and retire.’ Michael Smullen, AltMed

(The exception was an arrangement early on with fourth-generation agricultural business Plants of Ruskin. AltMed handled medical cannabis products, testing and sales and marketing while Plants of Ruskin handled growing, in its Hillsborough County facility. That partnership was a success. “It was the most perfect marriage,” AltMed CEO John Tipton says. “Our thoughts on where we wanted to go in this industry were so aligned.”)

That alignment has also been lucrative: AltMed, which sells a variety of  medical cannabis products under the brand MÜV, has grown revenue 1,150% in three years, from $8 million in 2018 to about $100 million last year. It has more than 700 employees and some 30 locations.

Now, with a deal announced late last year, AltMed enters another partnership — one with a lot more vetting and a lot more potential than the one from Arizona in 2014. This one is a merger with Chicago-based Verano, which operates a cannabis business in 14 states with 1,600 employees, 46 retail locations and eight production facilities, according to Bloomberg News.

Verano — like AltMed, founded in 2014 — estimates it did about $380 million in revenue in 2020, Bloomberg reports, citing an investor presentation. Financial terms of the Verano-AltMed merger, which includes Plants of Ruskin and affiliated companies, weren’t disclosed. The combined company, which will keep the Verano name, creates one of the three largest cannabis companies nationwide. Plans are in the works for the company to go public as well, under a reverse takeover with a Canadian company.

Smullen, named to the Verano board, says the merger and going public is the culmination of a wild, six-year ride. “Our goal was always to become the best medical cannabis company in Florida,” says Smullen, in the pharmaceutical industry before AltMed. “But this certainly has not been easy. There was a lot of times we could’ve just said we’re going to pack it in and retire.”

Courtesy. Todd Beckwith with AltMed examines plants at the company’s facility in Hillsborough County.

Smullen and Tipton say AltMed’s success goes back to several key decisions. “Anytime you build a company, you will always find yourselves at a crossroads,” Smullen says. “And when you do, you have to make the right choices.”

Three of the biggest crossroads for AltMed include:

  • When the medical marijuana amendment failed in Florida in 2014, AltMed’s leadership kept going — but in Arizona. It kept the headquarters in Sarasota but built a $10 million state-of-the-art facility in the Grand Canyon State, as both a testing ground for Florida and to begin building its brand. “We decided to press on,” Smullen says. “That was a critical decision for us.”
  • Critical, but risky. When a medical marijuana amendment passed in Florida in 2016, the company, with a focus out west, was No. 38 on the list to get a license. State officials planned to approve far fewer licensees. “It looked like we were going to have a difficult road,” Smullen says.
  • That led AltMed to Plants of Ruskin, which the Dickman family had operated for generations. The Plants of Ruskin partnership, Tipton and Smullen say, provided an avenue to a license — in addition to top-tier products.

The success from 2014 to 2020 led to a fourth crossroads: finding a partner — particularly one with the matching experience and high ethics — to expand with nationally. The company had several suitors, Smullen says, but nothing fit. Then some preliminary conversations with Verano officials led AltMed to a courtship and deeper talks with the Chicago executives, to now what it believes is the just right match. “We wanted to find somebody with the same philosophies we had and that was pretty difficult to find,” says Tipton, who will be president at Verano. “We had seen most of the players. We thought maybe we’d end up doing this on our own.”

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