Recently, our CEO, Niel Marotta represented the company at the O’Cannabiz conference in Toronto and also provided an interview to Proactive Investors Vancouver earlier this month. Niel commented on the coming edibles legalization, the future of Canadian cannabis and gave some insights as to how Indiva plans to be a large part of it all. Our exposure is growing and Niel does a great job letting everyone know what makes us tick.
What does the cannabis industry landscape look like in 2019 and beyond?
We’re all excited about the next phase in Canadian cannabis legalization which has been dubbed “Cannabis 2.0”. We’ll see the new framework unveiled later this year as the Canadian government has said they will legalize cannabis edibles and derivatives, thus opening a massive new market for all sorts of cannabis companies and products.
It’s a big deal for cannabis, and we’ve seen evidence of just how important edibles and derivatives products are going to be by looking at the more mature markets of some US states. In California, Nevada, and Oregon, edibles and derivative products dominate, with dry flower now making up less than half the market (and less than half the profit). While flower production will always be a necessary and vital component for the industry, it won’t rule the consumer market because what we’re seeing are clues that edibles and derivatives are going to be the market majority.
It’s not all that surprising if you think about it, because edibles and derivatives offer virtually limitless product varieties that blend better with people’s daily lives than smoking dried flower. On top of that, not everyone wants to or is even able to smoke, so cannabis derivative products offer alternatives many prefer and let everyone try cannabis on their own terms. We’ve seen it in the US and we’re expecting Canada to follow suit once products like foods, beverages and other derivatives are sold legally.
An emerging market this big will get a ton of attention coming from not only Licensed Producers or cannabis companies but massive food and beverage processors too, who are looking at cannabis to provide the next revenue stream injection.
Everyone is interested in the industry, but getting in may not be as easy as some think. There are distinct barriers to entry, a big one being the heavy safety regulations imposed by Health Canada that make it impossible to enter the cannabis industry without at least completing a complicated licensing process, or “swimming through the ocean of mud,” as Niel so eloquently put it. This includes developing secure facilities, establishing lab testing, producing approved products with approved packaging, and a whole host of other stipulations.
Long story short, the process is extremely thorough, so it doesn’t make sense that a corporation (even a big one) would be able to quickly set up shop and be allowed to do so by the government. Us Licensed Producers have been approved to produce cannabis safely, we know what we’re doing, and we should be the ones responsible for cannabis products.
In the end it largely comes down to public safety, and we think Niel summed up the concerns quite nicely when he said, “What if General Mills starts making THC Cheerios…and that slips into a kid’s bowl in the morning, not because of lousy parenting but because it went out the wrong distribution door.” It would be essentially ‘reckless’ to produce cannabis-infused products alongside non-infused products and to even think about doing so without the proper licensing process that all LP’s had to go through. Cannabis edibles and derivative products are nothing to joke about and their production needs to be left to professional LP’s.
Getting back to the cannabis industry in general, our prediction is that we’ll see a market involving both flower and extract companies in a symbiotic relationship (it takes flower to make edibles and derivatives), but with the majority of consumer revenue flowing through non-flower products. Flower production will be dominated by producers with the most acreage while edibles and derivatives could offer massive opportunities to well positioned and focused companies.
Why we’re excited for “Cannabis 2.0”
“You don’t need acreage to produce edibles and extracts, you need a team, a business model, and a company that understands how to get it done.”
Again, look at the markets in some US states, where flower represents less than half of the profits yet seems to be where most of the competition and price pressure occurs. It doesn’t make sense to fight in that arena when the market for edibles and derivatives is going to be so much bigger and accessible once legalized. We at Indiva are aware of this and have differentiated ourselves by choosing to focus on edibles and derivatives instead of flower.
That being said, at this point in time, we are unable to offer clear guidance for investors on revenue capacity but it’s clear that the company can increase profits significantly by focusing on edibles and derivative products.
Niel was rightfully optimistic and stated, “If we can hypothetically do 20 million in revenue growing flower, then we can do 5 times that number doing derivatives.”
Edibles and derivative products have been the plan all along and are the reason why we can’t wait for the second phase of legalization to go through in Canada.
We’re ready to go
It’s important that investors see our LP for what it really is – a factory and not a farm. As it stands, the cannabis industry has a sort of reputation, where every Licensed Producer is (or needs to be) a cannabis farm relying on acreage to make profits. While that outlook may have been true earlier, in our opinion it’s now very limited and short-sighted.
On that note, our attention is directed towards edibles and derivative products, with flower production a secondary operation. Our London, ON indoor aeroponic grow facility does have a flower capacity of about 3 tonnes annually, but growing our own flower simply allows us to have product on hand for our other ventures and helps us remain vertically integrated, in order to ensure biomass supply in the short-term, within the industry as a whole.
The real ‘big deal’ is our 70-ton extraction facility which allows us to process cannabis edibles and extracts. It’s these types of products that present a much larger amount of potential revenue per square foot than cannabis flower and helps us differentiate from the competition. The extraction facility means we have lots of capacity to produce derivative products for our own brands and for other third-party companies.
Recently, our focus has been on launching legal products through the OCS (pre-rolls, capsules, and oral sprays), but we have also ensured we are prepared to launch a lot of more interesting products once the second wave of legalization happens.
With the expected consumer market shift away from dried flower, we’ve acquired licenses to established derivative products with well-known names to build out the number of SKUs our company has to offer. A joint venture with Bhang™, an award-winning cannabis chocolate producer (they also make gums, sprays, isolates, gummies, vapes as well as other cannabis products) is in place and gives us exclusive rights to produce and distribute the entire Bhang product line in Canada. We also have another agreement with DeepCell for their Ruby™ product line of flexible edibles. The companies Crystal Fusion™ technology allows cannabis to be fused with crystalline structures like sugar, salt or xylitol. Best of all, the fusion process is done mechanically with no added chemicals or bonding agents. For example, Ruby™ infused sugar has only two ingredients – cannabis and sugar – and we know it’s going to be a homerun.
We’re already established and ready to hit the ground running once the next wave of legalization passes. It’s exciting times for the Indiva team!
Where is Indiva headed?
Our philosophy is pretty straightforward. We’re focused on edibles and derivative production for the foreseeable future. We will grow some cannabis flower to meet our needs while leveraging our extraction facility to produce and distribute our growing family of brands (Indiva, Bhang, and DeepCell).
Our goal isn’t to be the biggest, lowest cost flower grower, but to lead the industry for high-quality cannabis edibles and derivatives.
We’re looking at Canada first, and are already in talks to expand into additional Canadian provinces to keep establishing ourselves in the domestic market. We’re also opening a ‘farm gate’ store at the London facility where people can come take a tour and partake in educational programs to learn about cannabis and its effects.
The global market will come next, and we’re currently laying the groundwork for European expansion. We’ve begun by signing an LOI to purchase a license in Denmark, which we see as a potential gateway to import, produce, and distribute our products in Europe.
Watching and listening to Niel speak about the industry and our roadmap for success, we can’t help but feel excited about the future. For those familiar with or invested in Indiva this is nothing new, but it’s always great to have updates provided and to see the media buzz about our company.