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ESDI: Eastside Distilling: Redneck Riviera a tremendous opportunity with no obvious downside.

11/17/2017
By Ian Gilson, PhD, CFA

NASDAQ:ESDI

During a conference call Eastside Distilling (NASDAQ:ESDI) management and John Rich outlined the opportunities for the joint venture of Eastside and Rich Marks.
 
Rich Marks is an established name in the U.S.A. It has a range of products from western boots (California is its largest boot market) to beef jerky sold in over several thousand points of sale (POS) across the SE. They sell apparel and have an on-line presence under RedneckRiviera.com.
 
In early 2015 John Rich outlined his plans to expand his brand to include restaurants (there are now two, Nashville and Las Vegas) liquor, cigars and other ventures.
 
Income from the sale of liquors go to Eastside. There are no royalties but John Rich will be reimbursed for out of pocket expenses. The License is for 10 years. After the first three years Eastside must meet certain sales targets.
 
John Rich is an established Country and Western music star. He has relationships with many retail establishments, including bars, and grocery chains across the SE. U.S.A. Together with Eastside he develop relationships with liquor distributors that go beyond those that Eastside has currently.
 
The whiskey will be a premium brand product. The flavour profile is expected to be similar to that the best selling Canadian whiskeys. As mentioned in our previous reports the price points for premium whiskeys are in the range of $20 to $30. Crown Royal, for example, is one of the best selling whiskeys in the US and sells for  between $25 to $35 per 750 ml bottle depending on the outlet. Crown Royal offers flavoured and premium products at higher prices.
 
John Rich will advertise the product. There are more Country & Western radio stations across the US than any other genre. Although radio is a dying media it still commands a major presence in the SE US. John Rich will use this media, as well as TV stations, to advertise his shows and concerts where he will sponsor the new whiskey.
 
Branding will be done by Eastside and Sandstrom Partners.
 
In the near term there does not appear to be any downside to the agreement. There are no up-front expenses, the initial commitment by Eastside is $40,000 a year. We expect market entry in 1Q18.

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