Vertical, a California-based cannabis company, is spinning off its hemp and CBD business, which it's aiming to take public on a major US stock exchange.
The new entity, Vertical Wellness, will be headed up by the aptly named Smoke Wallin. He'll serve as the CEO of the hemp side, while Todd Kaplan, Vertical's founder, will remain the CEO of the company's marijuana business.
Vertical Wellness will cultivate hemp and produce branded CBD products for the US market, while Vertical will focus exclusively on California, where marijuana containing THC is legal.
Wallin, who was previously the CEO of a number of alcohol brands before taking a role as president of Vertical last year, said the split would likely happen in mid-February. Existing shareholders — those who bought prior to the split date — will get stakes in both Vertical Wellness and Vertical.
The company is now looking to raise money from institutional backers to lay the groundwork for going public, Wallin told Business Insider in an interview.
Read more: Aurora Cannabis is gearing up to break into the $1.6 billion CBD industry in the US
Vertical Wellness is targeting a listing on the Nasdaq — Wallin was business-school classmates at Vanderbilt with Nasdaq CEO Adena Friedman — but the company isn't set on whether it will pursue a direct listing like Slack or engage bankers and go through a more traditional initial public offering.
Wallin said his team is also thinking about pursuing a reverse merger, though that's his least preferred route.
Since the federal government passed the Farm Bill in December of last year, hemp — a variety of the cannabis plant that contains only minuscule amounts of THC, the compound that gets you high — has been legal throughout the US, though THC-containing plants remain prohibited by the federal government.
Prior to the Farm Bill passing, major US exchanges such as the Nasdaq and the New York Stock Exchange wouldn't allow cannabis companies that sell products in the US, hemp or otherwise, to list.
Hemp is a source of CBD, or cannabidiol, a nonpsychoactive compound that has shown up in everything from upscale gummies to infused water. The CBD market could hit $22 billion worldwide by 2022, according to the industry research firm Brightfield Group.
Some institutions have signaled that the Farm Bill provides enough legal footing to invest directly in companies that don't touch THC-containing marijuana plants, Wallin said.
When he met with hedge funds to raise money for Vertical last summer, Wallin said that there was a ton of interest but that the investors in those funds — usually pension funds or insurance companies — wouldn't touch any deal with a whiff of federal illegality.
"There were a lot of what I'd call 'pass the hat' deals, where partners would invest their own money or pool together to invest outside of their fund," Wallin said.
Now, "the company isn't tainted by the THC side of things," Wallin said. "So if you're an institution that wouldn't previously hold Vertical stock, now there's a path to doing so."
Having real institutional backing is critical to a company like Vertical Wellness that's trying to grow quickly. After all, growing hemp is a capital-intensive process, and developing enough quality supply to meet the skyrocketing demand for CBD will be challenging.
"I want to spend my time working on the business and not raising money," Wallin said. "All the Marriotts, Hiltons, Nestles, and Cokes of the world want a piece of CBD."
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