MACCO Case Study – SLANG Worldwide, Inc.

By Drew McManigle, Macco Group

ABOUT THE CLIENT:

SLANG Worldwide, Inc. (SLANG) is a publicly traded (CNSX: SLNG) (OTCQB: SLGWF) cannabis consumer packaged goods company with a diversified portfolio of five distinct brands and products distributed across the U.S. Operating in fifteen legal cannabis markets nationwide, specializing in acquiring and developing market-proven regional brands, as well as launching innovative new brands.

CANNABIS HISTORY:

The origins of cannabis are ancient. According to Wikipedia, “cannabis was first domesticated about 12,000 years ago in East Asia during the early Neolithic period. The use of cannabis as a mind-altering drug has been documented by archaeological finds in prehistoric societies in Eurasia and Africa with the oldest written record of cannabis usage being the Greek historian Herodotus’s reference to the central Eurasian Scythians taking cannabis steam baths.” There are three major strains: cannabis sativa, cannabis indica and cannabis ruderalis. From these three strains numerous varieties are developed for taste, potency and marketing differential. Cannabis has more than 1,200 slang terms and more than 2,300 names for individual strains.

Canada legalized medicinal cannabis in 2001 and recreational use in 2018. In the United States, during the 1970s, several west coast states began to liberalize cannabis laws through decriminalization; however, it remains a federally regulated Schedule I prohibited narcotic. At the state level, in 1996, California became the first state to legalize medicinal cannabis. This sparked a trend that spread to most states by 2016. In 2012, both Washington and Colorado became the first states to legalize cannabis for recreational consumption with other individual states across the country following suit, first legalizing medicinal, and then later, recreational use. The “Green Rush” occurred as entrepreneurs, from every genre, from former illicit growers/distributors to investors, private equity firms, lenders, family offices and retail stock buyers piled into the cannabis industry at every level, cultivation, production, dispensary and cpg/devices and branding. 2

THE FIRE

In 2021, having gone public in 2019 followed by several subsequent rounds of cash raises, several questionable acquisitions, and the replacement of its then founder/CEO with a marketing professional from an acquisition, SLANG was on Fire.

Burning approximately $2.0MM/month in cash and its share price had fallen from C$2.50/share to approximately C$0.06/share.
Beleaguered by poor board governance, primarily consisting of insiders or those with their own conflicting interests.
Operating management was stymied by a meddling board and an ineffectual, weak-kneed CEO.
Overhead was enormously bloated compounded by the costs of being a public filer.
Sales were lackluster led by a recently mis-hired chief revenue officer.
Bad acquisitions, failed products, high production costs, inefficiency and poor logistics abounded.

SLANG was dysfunctional at every level. And, with only a few months of cash to support it at its current burn rate, large shareholders were debating whether it was worth investing in or saving at all.

THE RESCUE

In October 2021, MACCO was engaged as Financial Advisor and immediately began assessing and planning the turnaround. The previously floated idea for US$17.5MM term loan by three insider shareholder/partners was negotiated and closed the following month, coincident with Drew McManigle assuming the role of Interim-CEO and Board Chairman. On November 16, 2021, the MACCO team began implementing its focused and rapid response turnaround plan.

Conserve cash including the detailed development of a 52-week “living” cash flow analysis that traced every penny in and every penny out.
Wind down, shutdown or sell cash-draining and unprofitable subsidiaries, including Colorado and Oregon cultivation and production facilities.
Terminate founder/executive management, take active control, and begin integration of an August 2021 Vermont acquisition that was poorly executed from the beginning.
Create a culture of personal accountability while insisting upon clear, accurate and actionable communication across the executive and middle management team, while mentoring key C-Suite employees.
Implement viable and necessary controls, policies, and procedures across the organization.
Establish appropriate boundaries between board members, lenders, and operating management.
Optimize productivity, while reducing excess headcount, by thoughtfully and rapidly assessing talent, roles, and responsibilities.
Clean up prior management’s balance sheet, share issuances, and officer and employee compensation blunders.
Initiate and drive development of new brands and products while eliminating poor performers.
As acting board chair and nominating committee member, recruit, interview, and seat qualified and experienced business professionals to the board, while assuring a successful CEO succession strategy.

THE RESULT

SLANG survived and thrived!

Negotiated and closed a $17.5 million term loan facility in the first 6 months of the engagement.
Over $10 million in cash remained on the balance sheet at the completion of the engagement.
Accounts payable was significantly reduced together with improvements in purchasing and ordering operations.
Accurate and clear financial statements, including clean-up of balance sheet issues from various mergers and prior management actions.
Completion of a 1:6 reverse merger rationalized stock ownership.
Resolved myriad failed subsidiary, lease obligation, loan and related business and finance issues.
Reduced headcount by 50% while improving operational efficiency.
Slashed operating overhead by approximately $4.5 million.
Optimized logistics.
Improved brand awareness and marketing by revamping website.
Reformed the sales team, including recruiting and seating a new Sales Manager.
In a record 10 months, initiated the development and launching of a new brand for both CBD and THC product lines.
Right-sized operations in Vermont, while simultaneously resolving cultivation investment/expansion issues, recruitment, and seating of new qualified local operating management.
Buildout of a single recreational cannabis location in Vermont and obtained a single recreational cannabis license, effective October 1, 2022.
Capitalized on a $3.0 million obligation to an unrelated New Jersey Cannabis licensee resulting in the opportunity to acquire 80% of an up-and-coming cannabis dispensary in New Jersey.
An independent, culturally diverse, proficient board of directors was seated, including establishment of an M&A Committee to assure independent review of management sponsored acquisitions.
Mentored and advocated for key executive team member to the successful transition of permanent CEO.

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