Case Study: Restructuring for Growth - Kaleafa Inc.'s Journey in the Cannabis Retail Industry

Abstract:

This case study explores how Kaleafa Inc., a legal cannabis retail company based in Portland, Oregon, underwent a comprehensive organizational upgrade to secure external investor capital and expand into new markets. Facing challenges related to its complex ownership structure and ambitious growth goals, Kaleafa partnered with our consulting firm to address operational inefficiencies, implement modern financial management tools, and prepare for sustainable expansion. Through strategic planning and targeted improvements, Kaleafa successfully raised external capital, streamlined operations, and emerged as a premier Multi-State Operator (MSO) in the cannabis industry.

Background:

Kaleafa Inc., a first mover as a legal cannabis retailer, sought to capitalize on its early successes by expanding into new markets. However, the company faced significant challenges due to its complex ownership structure and the need for more robust operational procedures and tools. To overcome these obstacles and achieve its growth objectives, Kaleafa engaged our consulting firm to drive organizational restructuring and facilitate the acquisition of external investor capital.

Despite having established itself as a successful cannabis retailer with multiple locations in Oregon, the company recognized the need for external investment to fuel its expansion into new markets. Kaleafa's complex ownership structure, inadequate governance model, and inefficient operational processes hindered its ability to attract investors and scale effectively. Previous engagements with accounting and technology consulting firms yielded mounting costs with little progress, prompting Kaleafa to seek our assistance in addressing its organizational challenges, preparing the business for growth, and securing the capital to fund its growth.

Goals Properly Segmented:

To address Kaleafa's challenges comprehensively, we identified three areas of focus:

1. Fundamentals and Pre-Due Diligence: Establishing a solid foundation by addressing operational inefficiencies and streamlining processes to make the business "due diligence ready."

2. Advanced Business Tools and Processes: Implementation of modern financial management tools and established clear processes to enhance scalability and operational efficiency.

3. Investor Engagement w/ Strategic Growth Plan: Developing a strategic plan for sustainable growth and effectively communicating Kaleafa's unique value proposition to potential investors.

Opportunities Identified for Improvement:

Through an Initial Assessment, we clarified several areas for improvement within Kaleafa's operations, including:

• Complexity of the corporate structure leading to functional challenges and unnecessary expenses.

• Lack of clarity on roles, responsibilities, and core processes.

• Incomplete accounting records and uncertainty regarding liquidity and forward-looking cash position.

• Inefficiencies in inventory management and demand prediction for key product categories.

• Poor adherence to corporate governance and lack of prioritization of long-term strategic issues.

Operational Outcomes and Achievements:

Our collaboration with Kaleafa resulted in significant operational improvements, including:

1. Streamlined Corporate Structure: Addressed tax inefficiencies caused by mixing C-Corp. and LLC entity formations; consolidated reporting for all operating entities; and managed convertible notes to simplify the corporate structure.

2. Enhanced Clarity on Roles and Responsibilities: Defined roles, responsibilities, and processes to improve operational efficiency.

3. Improved Financial Management: Balanced accounting records, enhanced cash management with a rolling 13-week forecast, and implemented inventory control measures.

4. Streamlined External Consultant Engagements: Aligned efforts between accounting and technology firms, controlling expenses while adding value to executing solutions to improve the business.

5. Prepared Company for Expansion: Identified and addressed challenges hindering growth projects and developed a strategic plan for multi-state expansion.

Fundraising Outcomes and Achievements:

By addressing immediate needs and telling its unique story with long-term goals, Kaleafa achieved success in fundraising:

1. Developed Financial Models and Analyses: Created unit-level budgets, expansion models, and detailed pro formas for investor presentations and due diligence.

2. Prepared Investor Materials: Authored Confidential Investor Memorandum (CIM), investor pitch decks, and managed online data rooms for due diligence activities.

3. Generated Investor Interest: Managed investor development, resulting in numerous indications of interest from family offices, qualified investors, and private equity firms.

4. Closed Rounds of Capital Raising: Successfully secured undisclosed amounts exceeding $10 million in equity and debt capital.

Conclusion:

Through strategic organizational restructuring and effective investor engagement, Kaleafa Inc. successfully raised external capital, streamlined operations, and expanded its footprint in the cannabis retail industry. Our collaboration empowered Kaleafa to overcome its operational challenges, fuel growth, and emerge as a premier Multi-State Operator, establishing itself as a leading player in the legal cannabis market.