Profitable California Cannabis Cultivator Kings Garden Is Paying Dividends to Its Investors
Exclusive Interview with Kings Garden Co-Founders Michael King and Charlie Kieley
Kings Garden started five years ago in the Coachella Valley region of California. Since then, it has grown into a profitable cultivation company backed by the funding of friends and family. Founders CEO Michael King and COO Charlie Kieley spoke with New Cannabis Ventures about their company’s California presence, their approach to distribution and their thoughts on the commoditization of cultivation.
King comes from a background in finance, beginning his career on Wall Street and then moving into real estate. He moved into the cannabis space approximately seven years ago. Kieley has spent the past 15 years in cannabis, owning and operating retail dispensaries and facilities. He was working in northern California but had roots in the Palm Springs and Coachella Valley area. As soon as Palm Springs began licensing commercial cannabis facilities, he came home.
King, with his financial background, and Kieley, with his operations experience, have complementary skill sets. They lead the company along with other key players including CFO Lauri Kibby, Vice President of Operations Gary LaSalle, Head of Cultivation Tyler Geld, Vice President of Distribution Jeffrey Fellbaum, Vice President of Processing/Packaging Cameron Magallanes , Chief Marketing Officer Tommy Kieley, and Vice President of Marketing Ivan Talan.
The leadership team oversees the approximately 200 employees at Kings Garden. Over the past five years, the company has been continuously building, but construction is now complete. The company may increase its personnel by 10 percent to accommodate increased production, but the team likely won’t need to grow much more, according to King.
Cultivation at the Core
At its heart, Kings Garden is a cultivation company. It produces premium, indoor flower meant for consumption in its raw form, according to Kieley. In July 2018, the company launched its first SKU: a packaged eighth jar. Now, Kings Garden has 16 SKUs, all produced in-house.
The company owns and operates approximately 215,000 square feet of licensed space in the Coachella Valley. The location is ideal for Kings Garden not only because of Kieley’s connection to the region but also because of the lower cost of operation compared to areas like Los Angeles and San Francisco. The company has more than 3000 cultivation lights and did more than 20,000 pounds last year.
The Kings Garden leadership team never had any intention of launching its own distribution operations. Instead, the team vetted the distribution players capable of handling the volume and scale their company was targeting. The list was relatively small, and Origin House was an easy selection to make, according to Kieley. He and the team see Origin House’s longstanding history of supporting brands and getting products to market, a major factor in its leading position as a distribution platform and as a strong acquisition for Cresco Labs.
Origin House handles all accounting, placing a link of separation between Kings Garden and its retailers. King and Kieley have heard about retailers struggling to pay, but they haven’t experienced it themselves.
Kings Garden is increasing its production by approximately 30 percent, which will result in a small increase in expenses and a significant increase in revenue, according to King. Additionally, the company is increasing its manufacturing by 400 to 500 percent.
Previously, the company has done significant wholesale business, but now it is shifting its resources to focus on its own branded products.
Last year, the company did $45 million with significant EBITDA, according to King. Kings Garden is targeting $70 to $80 million with an even stronger EBITDA this year. By 2021, the company is expected to be doing approximately $100 million. Those projections are rooted in the company’s now-completed infrastructure. Additional lights have increased cultivation capacity, and the significant increase in manufacturing is being driven by upgraded SOPs and equipment.
The Potential for Expansion
Kings Garden is taking a cautious approach to expansion. Over the past year and a half, the team has vetted opportunities in different states but none have been the right fit yet. If the company does pursue multi-state expansion, it likely will not take the form of building operations from the ground up. Instead, management contracts or licensing may be an option. At this point, King and Kieley want to enjoy the infrastructure they’ve built in California.
The company considered going public in the past, going so far as to travel to Canada and begin discussions. Ultimately, Kings Garden halted the go-public process, deciding it was the wrong decision. The company has no plans to list on a Canadian exchange, but it will consider the possibility of listing on the NYSE or NASDAQ when the time comes. For now, the company is happy to remain private, according to King.
Funding and Capital Allocation
In the beginning, King and Kieley put their own money into the company–five years ago, a 10,000-square-foot facility. They wanted to prove to themselves that they had a working model. Once they did, the pair began to make calls to friends and family and pick up more space. Kings Garden has raised a total of $55 million from friends and family. One of the company’s largest investors has put in approximately $13 million, while one of the smallest has put in about $20,000, according to King. Today, the company is profitable with no debt and has begun paying dividends to its investors, according to King.
Kings Garden carefully tracks its monthly expenses (the largest being rent, electricity, and payroll) and ensures it has enough to cover those. Over the last few years, the company has also been able to invest money it has made back into its infrastructure.
The Commoditization Question
The commoditization of cannabis is a big topic of discussion in the industry, but not one that worries the Kings Garden team. Outdoor and greenhouse products grown as biomass that will ultimately be used for manufactured goods likely will become commoditized, according to Kieley. But, that is not the kind of cannabis Kings Garden grows. It produces premium, indoor cannabis for consumption by connoisseurs, and Kieley does not anticipate commoditization affecting that kind of product.
Of course, the company faces other challenges common across the industry, from strict regulation to the burden of taxes. But, there is also an upside. With profitability becoming increasingly vital and capital funds drying up, bad operators will begin to fail–leaving behind a legitimate industry. “At the end of this, we are going to have the industry we always wanted,” said Kieley.
To learn more, visit the Kings Garden website. Listen to the entire interview: