A California marijuana company is spinning off its hemp and CBD business and is talking to bankers about taking it public

Vertical, a California-based cannabis company, is spinning off its hemp and CBD business into a standalone entity so it can go public on a major US stock exchange.The spinoff's CEO, Smoke Wallin, told Business Insider in an interview that he's in early stage talks with bankers to list on the NASDAQ. Wallin said he's in talks with a number of hedge funds and other institutional investors about backing the company prior to going public. Vertical, a California-based cannabis company, is spinning off its hemp and CBD business which it's aiming to take public on a major US stock exchange.The new entity, Vertical Wellness, will be headed up by the aptly-named Smoke Wallin. He'll serve as the CEO of the hemp side, while Todd Kaplan, Vertical's founder, will remain the CEO of the company's marijuana business.Vertical Wellness will cultivate hemp and produce branded CBD products for the US market, while Vertical will focus exclusively on California, where marijuana containing THC is legal. Wallin, who was previously the CEO of a number of alcohol brands before taking a role as president of Vertical last year, said the split will likely happen in mid-February. Existing shareholders — those who bought prior to the split date — will get stakes in both Vertical Wellness and Vertical.The company is now looking to raise money from institutional backers to lay the groundwork for going public, Wallin told Business Insider in an interview. Read more: Aurora Cannabis is gearing up to break into the $1.6 billion CBD industry in the USVertical Wellness is targeting a listing on NASDAQ — Wallin was business school classmates at Vanderbilt with Nasdaq CEO Adena Friedman — but the company isn't set on whether it will pursue a direct listing like Slack, or engage bankers and go through a more traditional IPO.Wallin said his team is also thinking about pursuing a reverse-merger, though that's his least preferred route.Since the federal government passed the Farm Bill in December of last year, hemp — a variety of the cannabis plant that contains minuscule amounts of THC, the compound that gets you high — has been legal throughout the US, though THC-containing plants remain prohibited by the federal government.Prior to the Farm Bill passing, major US exchanges like the NASDAQ and the NYSE wouldn't allow cannabis companies that sell products in the US to list, hemp or otherwise. Hemp is a source of CBD, or cannabidiol, a non-psychoactive compound that has shown up in everything from upscale gummies to infused water. The CBD market could hit $22 billion worldwide by 2022, according to the industry research firm Brightfield Group.Read more: Marijuana could be the biggest growth opportunity for struggling beverage-makers as millennials ditch beer for potSome institutions have signaled that the Farm Bill provides enough legal footing to invest directly in companies that don't touch THC-containing marijuana plants, said Wallin.When he met with hedge funds to raise money for Vertical last summer, Wallin said there was a ton of interest but the investors in those funds — usually pension funds or insurance companies — wouldn't touch any deal with a whiff of federal illegality."There were a lot of what I'd call 'pass the hat' deals, where partners would invest their own money or pool together to invest outside of their fund," said Wallin.Now, "the company isn't tainted by the THC side of things," said Wallin. "So if you're an institution that wouldn't previously hold Vertical stock, now there's a path to doing so." Having real institutional backing is critical to a company like Vertical Wellness that's trying to grow quickly. After all, growing hemp is a capital-intensive process, and developing enough quality supply to meet the skyrocketing demand for CBD will be challenging. "I want to spend my time working on the business and not raising money," said Wallin. "All the Marriotts, Hiltons, Nestles, and Cokes of the world want a piece of CBD." Sign up here for our weekly newsletter Wall Street Insider, a behind-the-scenes look at the stories dominating banking, business, and big deals.Read more:A $200 million marijuana VC breaks down how he picks what companies to invest inA popular California marijuana brand just raised $75 million in funding from Super Bowl MVP Joe Montana and a former Yahoo CEOA weed-tech startup backed by an early Juul investor and Canopy Growth just raised $12 millionAn early investor in Juul is raising $75 million to make venture investments in pot companies