Twenty years after Andy Fathollahi founded Incipio Group with a $500 loan from his parents, he’s entering an industry that he believes could be huge: cannabis.
“The cannabis space reminds me of where the mobile phone business was 20 years ago,” Fathollahi told the Business Journal.
“Cannabis might just be the new iPhone.”
Meanwhile, Incipio, an Irvine-based maker of protective cases for iPhones and other mobile devices, is undergoing change. It restructured itself last year and hired a new chief executive—its third CEO in less than a year—who is an expert at turning around companies.
Fathollahi, still chairman of Incipio, recently started a Newport Beach company called Kanvas Co., which has 20 engineers and others working in Orange County, as well as southern China.
The company’s website pitches the company as “a packaging, accessories and design brand,” but not with smartphones in mind.
It developed a software and hardware system called Vapetelligence to provide control mechanisms for vape consumers.
It’s also making humidity-controlled glass jars to permit consumers to store cannabis flowers for potentially longer periods of time. Inappropriately stored flowers in non-airtight containers can contract mold, spores and other biological toxins, which are dangerous if inhaled.
Other cannabis-focused products its website promotes are bags for “discreet” transport.
“With the [cannabis] market in its infancy, there is fantastic opportunity for a disruptive brand to change the landscape of the industry,” Fathollahi said.
The Interest
Fathollahi built Incipio into a designer and developer of mobile accessories with a focus on cases, bags, speakers and powering devices sold under licensed and company-owned brands.
He also convinced Wall Street of its potential.
In 2015, Monroe Capital LLC (Nasdaq: MRCC) provided $55 million in a unitranche secured loan to support the growth of Incipio. Unitranche is a combination of senior and subordinated debt.
In 2016, Incipio sold a minority stake to private equity investor Goode Partners LLC of New York on undisclosed terms. Goode’s website still lists Incipio as one of its companies.
In recent years, Incipio acquired a number of smaller companies. The company lists 11 offices around the world and has employed as many as 500 employees at one time. The company has indicated that its sales have reached the hundreds of millions of dollars.
The Signs
Yet, there are signs that Incipio is struggling.
Last month, the company announced Rusty Everett as executive vice president of sales.
“We are enthusiastic about Rusty coming on board to lead our sales team at Incipio Group,” Chief Executive Stuart Noyes said in a company issued statement.
What was far more interesting was Noyes’ appearance as CEO in the press release. It was just last September that Incipio hired Tom Park as CEO to replace Fathollahi.
Noyes is also managing partner and co-founder of Winter Harbor LLC, a Boston-based company that helps “businesses facing difficult situations.”
It raises capital and provides “interim management,” including CEOs.
Winter Harbor’s webpage said Noyes is an expert in bankruptcies and is a member of the Turnaround Management Association.
Fathollahi and spokespeople for Incipio and Winter Harbor declined to comment.
New Owner
As part of a restructuring Incipio made last year, Chicago-based Monroe made a follow-on investment, picking up 17.7% of the company’s equity as a result, according to Monroe’s annual report.
Monroe also nabbed for “no cost” an Incipio third lien tranche. That tranche, the amount of which wasn’t disclosed in regulatory filings, is in a non-accrual account, meaning Monroe isn’t getting paid.
“The only time those would ever really go in accrual would be if there was a massive recovery in the business,” Monroe Chief Financial Officer Aaron Peck told investors on an Aug. 11 conference call.
As of June, a Monroe filing showed it has a unitranche secured loan with Incipio of $19 million at an 11% interest rate and a junior secured loan of $11 million at a 10.7% interest rate.
A Monroe spokeswoman declined to comment.
