Hemp Spinoff Aims to Raise $50 Million and List on Nasdaq This Year

(Bloomberg) -- California-based cannabis producer Vertical Cos. has raised $58 million in a funding round that values the company at $285 million, the first step toward listing its hemp spinoff on the Nasdaq.

The Series A financing was upsized from an initial level of $20 million, with most of the funding coming from high-net-worth investors and family offices, Vertical said Tuesday. The funding details are being released as the company completes the spinoff of its hemp-focused business, Vertical Wellness, today.

The plan is to raise an additional $50 million for Vertical Wellness, “and that will pave the way for a Nasdaq listing hopefully later this year,” said Smoke Wallin, chief executive officer of the hemp firm.

Vertical Wellness has secured 2,000 acres of farmland in Kentucky that will produce more than $400 million of hemp-derived CBD by the end of 2019, Wallin said. It also has a 90,000-square-foot processing and manufacturing facility in Kentucky and plans to create its own brands, as well as sell its CBD to other consumer packaged goods companies.

CBD is growing in popularity as consumers buy everything from lotions to baked goods containing the non-intoxicating compound, which proponents says helps with insomnia, arthritis pain and other ailments.

The U.S. farm bill, passed in December, legalized hemp and its extracts nationwide. Big retailers including CVS Health Corp. and Walgreens Boots Alliance Inc. have said they’ll begin selling CBD products to meet consumer demand in a market that’s estimated to be worth more than $20 billion by 2022.

The change in law potentially opens major U.S. exchanges to listings from hemp companies as long as they don’t touch marijuana, which remains illegal at the federal level. The New York Stock Exchange and Nasdaq have so far only agreed to list Canadian cannabis producers like Canopy Growth Corp. and Tilray Inc. Canopy is in the midst of spending up to $150 million to build a hemp production facility in New York state.

As a hemp-only company, Vertical Wellness should be able attract “much more mainstream capital” from “investors who really like the space but just can’t get past the federal prohibition,” Wallin said, adding that the presence of CVS and Walgreens has given the CBD market a new level of legitimacy.

“Demand is going to go through the roof just based on distribution points and the ability to sell through mainstream retail,” he said. “The consumer market is thirsty for this.”

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