Magical Brands COO Discusses Recent Capital Raise, Future Growth Opportunities
Earlier this year, extraction device manufacturer Magical Brands closed a multimillion-dollar revenue-based financing deal with Decathlon Capital.
The company, which makes the popular MagicalButter infused edible-making machine, has a goal of eclipsing $24 million in revenue this year on its path toward $100 million in sales by 2024.
THCnet recently caught up with Magical Brands chief operating officer Craig Snyder to discuss the recent fundraising round, and the company’s plans for growth.
The following interview has been condensed and lightly edited for clarity.
THCnet: Can you take us through Magical Brands' story, and provide an overview of the business?
Craig Snyder (CS): The business was launched about six years ago by Garyn Angel in response to a friend of his that had Crohn’s disease. It was suggested that cannabis may be helpful, but due to respiratory issues, he couldn’t smoke. So, Garyn crated what was — at that time — the first botanical extraction machine that was able to take the botanical benefits from the plant and put it into edibles. Today, we are the largest botanical extraction company, operating in Canada, the U.S., Mexico, South America, Europe, and the U.K. We have the mechanical extraction machine and a decarboxylation box that allows you to decarboxylate cannabis. We also recently started selling ingredients like lecithin, functional mushroom powders, coconut oil and ghee butter, which are the most common ingredients found in the more than 400 recipes that are on our website.
THCnet: So, is this purely a B2C play for now?
CS: Yes. 90-95% of our business is direct-to-consumer, primarily through our website and through Amazon. We also work with a couple of distributors, but it is primarily DTC.
THCnet: Are traditional retail opportunities available for a brand like yours, or is that still off-limits?
CS: We have relationships with Bed Bath & Beyond and Macy’s. And we see those expanding. We’re online right now, and we have to earn our chops there, but once you get to a certain level you can be selected for in-store placements. We are not quite there yet, but I think it is a spot we would like to get to. We might also look at the Home Shopping Network or a similar company. We are in big box retailers now and we will continue to expand our footprint.
THCnet: So, help me understand why someone would want or need this product in their home?
CS: I think there are three different types of people that use the machine. The first is the nutritionist, who really wants to control everything that goes into their body, and the way it goes into their body. So, they use the machine, and it may include cannabis or nutraceuticals, or ways to make sauces and dressings. The second would be a wellness consumer — someone with MS, Crohn’s disease or PTSD, or someone who has chronic pain and can’t sleep. They put cannabis in their consideration set, and the machine allows them to make the edibles that make them healthier. The third is a recreational consumer who wants to get high and is interested in edibles. There’s increasing edible consumption, and the machine allows someone to put cannabis or CBD into an active recipe and enjoy edibles as opposed to smoking.
THCnet: There are a lot of emerging brands out there vying for the edible consumer and selling their products directly through the dispensary channel. Why would I not just buy one of those brands as opposed to going through all of the steps required to make it at home?
CS: I think there’s generally two reasons. One is cost and the other is control. It is generally expensive to go to a dispensary for those products. And the ability to control the elements going into an edible is something that our wellness and nutrition consumers are especially mindful of.
THCnet: What comes to mind for me when I see the MagicalButter machine is something like the Juicero home juicer or the PicoBrew DIY brewing device. These were very sophisticated machines that allowed consumers to make their own versions of commercial products already available at a store. However, they ultimately failed. What makes MagicalButter different and more likely to succeed?
CS: I think it’s a few things. It’s not only the actual mechanical device itself, but also the advice and the community we offer. We spend a lot of money on recipes and recommendations from chefs, to help people make the best edibles they can. We’re also trying to help customers source the best ingredients to make their edibles. And third is our forum called MBU. If you have MS, you don’t want to talk to someone at Magical Brands who is telling you how to deal with it. You want to talk to someone else with MS who is using the machine and benefiting from it. Our community helps each other out, and we provide a lot of content as well.
THCnet: How many MagicalButter devices have you sold?
CS: We have sold more than 500,000 units.
THCnet: And how do you scale a brand that is somewhat niche and targeting individuals who might already interested in cannabis or fall into some of the groups you mentioned?
CS: If you look at something like the opioid crisis, it has created a situation where people are looking to expand their consideration set. If you look at how much people are paying for opioids, to get a better solution — that is a pretty big marketplace. The Purdue Pharma settlement was about $8 billion in the U.S. So we think the market is fairly large, and we are just beginning to expand internationally. We’ve had very good consideration in the U.K and Latin America, where there is a lot of interest. Based on what we see being searched on Facebook and Google, and what is being talked about internationally, this is a very pervasive topic. And people are looking for solutions.
THCnet: Earlier this year you announced a revenue-based financing deal. Can you add some color on how that is structured?
CS: It’s largely driven off our top-line revenue. In this case, it is structured more like debt. There is no dilution. And it means that the better the company does in terms of its growth, the better the relationship gets with the bank. It is based on the growth of the business, as well as the borrowing relationship, and it allows us to get that capital to grow without giving a significant percentage of our business. It also gives us full credit for the growth we have.
THCnet: Does the debt come with a higher interest rate? Why not just go with typical bank financing?
CS: When you’re a young company growing 50% or more per year like we are, even though we are profitable, it wouldn’t allow us to borrow the kind of money we’d like. This is a much more flexible solution. The interest rates might be a bit higher, but it allows us to fuel growth, which creates more value for the company without giving up equity.
THCnet: So, what do you intend to use the funding for?
CS: It is primarily going into three places: international growth, new products and advertising.
THCnet: Long-term, do you see an opportunity for a large cannabis firm or even a more traditional houseware/cookware company to acquire the business?
CS: We’re more focused on growth and capturing market share right now. But I think those are the logical exit points. One is a strategic partner from within the industry, and the other is outside the industry. We could also take on more capital to keep growing the business for a potential IPO if we’re able to get the business large enough. Our goal in the next three years is to get the business up to $100 million in revenue.
THCnet: What about a SPAC?
CS: We’ve been approached by SPAC players doing a roll-up. SPACs and these reverse mergers or RTOs always exist. The key is finding the right partner. But we may also do some of our own M&A, and I think that is the more likely event. We can use our audience and platform for growth to bring in other brands.