CUBA Goes Capitalist

During the 2008 NACS Show, visitors were treated to an extravagant booth and display of video and skin by CUBA, an emerging, all-natural energy drink company that seemed to be – or was portraying itself to be, at least – on the verge of a breakthrough.

In the two years that followed, NACS Show visitors looking to relive the experience would have had a much tougher time, as CUBA didn’t have a booth at either show. In fact, it became a product whose launch was basically the only news it generated – and the drink, although well-received at the time –never caught on wildly.

Nevertheless, the brand made the unconventional business decision to go public about six months ago, executing a reverse merger deal in an effort to revitalize a brand that, according to CEO Alex Procopio, spread its resources too thin. A handful of beverage companies have gone public in recent years, and a look at CUBA provides an interesting look at the reasoning behind the option.

“We went into too many markets too quickly,” Procopio said. “We decided to pull back and focus on a few key ones, though we needed more resources for sales and marketing than just selling product.  But in a weak economy, it hasn’t been easy to get financing, and private investment just wasn’t there. Going public in a reverse merger was a better vehicle to support a brand like CUBA.”

In July 2010, CUBA merged with a dormant shell company called Green Card Capital; after control of the company changed hands it was renamed under the publically traded name, CUBA Beverage Company.

At the time of the merger, CUBA raised less than $100,000 but Urban Smedeby, who is a partner at Bridgewater Capital Corporation and the one who engineered the reverse merger, noted that there was a visibility component to going public that he said would make it much easier to raise money for a public company than for a private one.

Smedeby pointed out a similar reverse merger four years ago with Clearly Canadian, which found investment and some success in revitalizing a weak brand. Clearly Canadian did some advertising, even working out a brief endorsement deal with Steve Nash, although the company’s share price currently sits at just over $0.01 per share.  (Interestingly enough, in the 30 days between March 16 and April 15, CUBA’s share price slid from a high of 0.40 to 0.08 in very heavy trading.)

Still, Smedeby said that CUBA is currently trying to raise $500,000 and that the company was entertaining two specific offers from “people that have made money in the beverage industry”.

The move to go public has been accompanied by a flurry of activity in recent months, including a couple of USDA sponsored trade missions and a recent distribution deal with 5 Star Beverages in Southern California.

“5 Star is the fastest growing distributor in California, and we hope to foster our relationship with them for expansion into additional key markets like Los Angeles County,” Procopio said.  Our hope is to springboard success on the West Coast to develop production and supply lines on the East Coast and, ultimately, international markets.”

The president of 5 Star Beverages, Sanwat Gill, noted that he has known Procopio for over 3 years and had discussed distributing the product in the past, though it was CUBA’s current distribution to military bases in San Diego County that was the key factor in their decision to add the brand to its portfolio.

“The timing was right, so to speak,” Gill said. “CUBA’s deal with military bases is big for us. And since they’ve gone public and will have some funding behind them, and because they are not competing with any other brands in our portfolio, it was a good fit for us.”

Nevertheless, when asked if CUBA could reestablish itself as a brand on rise, Gill said that it was tough to say, noting that while 5 Star was committed to getting the product on store shelves, it would be up to CUBA’s sales and marketing team to drive growth.

“Currently, CUBA has only two people that do all of their sales work, and they’ll have to hire more [to be successful],” Gill said. “Though to be honest, if we didn’t think that [CUBA] could make it, we wouldn’t have picked up the brand.”