CannabisNewsWire
Editorial Coverage: Last year was a year of maturation for the
cannabis market.
- California’s growing pains are a recipe for success for handful
of savvy operators
- Brands, consistency and scalability likely deciding factors for
many companies
- Projected global market size an open-and-shut case for scaling
up NA sector
The market growth resulted from retailers in nine legal
adult-use states being pushed beyond the sector’s historically core
demographics, targeting fast-growing new segments such as women,
with an emphasis on elements such as wellness and clearly
labeled/low-dose alternatives. That trend was reinforced with CBD
breaking out into the mainstream, as industrial hemp became legal
throughout the United States, and cannabis companies looked for
ways to stand out from the crowd. Some companies were more
successful at this than others, with TransCanna Holdings
Inc. (CSE: TCAN) (XETR: TH8) (TCAN
Profile) making huge strides recently to expand the
upper-end procurement part of the business, as well as flesh-out
its footprint of branded offerings. Other moves have been made by
comparable sector players such as Canopy Growth Corporation
(NYSE: CGC) (TSX: WEED), DionyMed Brands Inc.
(OTCQB: DYMEF) (CSE: DYME), Cresco Labs Inc.
(OTCQX: CRLBF) (CSE: CL) and CannaRoyalty Corp.
(OTCQX: ORHOF) (CSE: OH), which are pursuing similarly
comprehensive approaches to the sector that run the gamut from raw
inputs to changing branding, marketing and distribution
methods.
To view an infographic of this editorial, click here.
Diverse Markets Hold Big Potential
California’s administrative and tax regime may have cost the
state half a billion dollars or more in potential cannabis market
tax revenues through over regulation, with the
state being the first market in the world since transitioning in
2016 from medical to recreational that has actually witnessed a
subsequent decline in the size of the legal retail market. This is
in stark contrast to Massachusetts and Nevada, which both
dramatically outperformed expectations. And while the California
legal retail market may have come in around half a billion shy of
projected targets, the illicit market is doing just fine, with an
estimated value of $3.7 billion last year,
accounting for as much as 80% of all sales. This is a clear
indicator that the potential exists to have hit analyst-projected
targets for the legal market, had California regulators not
handicapped a growing industry just as things were really getting
started.
In fact, with thousands of cultivation and manufacturing
licenses set to expire in the next few months and only Senate Bill
67 on the horizon to address the problem, some analysts are
predicting that California may see supply shortages
in the near future. At any rate, the national and international
markets are shaping up quite nicely, with the most recent worldwide
consumer spending estimates from Arcview Market Research and BDS
Analytics showing a 39.1% year-over-year
jump to $17 billion in 2019 and beyond. This is a market which
is on track to run at an estimated 26% CAGR through 2022, hitting
upwards of $31.6 billion, making it an extremely lucrative export
market for sophisticated North American cannabis brands.
Self-Contained Ecosystem and Closed-Loop
Brands
Founded in 2017 with the goal of genuine seed-to-sale capability
and rapidly acquiring a bevy of premium cannabis brands,
Vancouver-based TransCanna Holdings Inc. (CSE: TCAN) (XETR:
TH8) is pursuing a true “self-contained
ecosystem” approach to the sector via its California-based,
wholly owned subsidiaries. TransCanna is intent on ensuring maximum
brand consistency by handling every aspect of the production
process — from procurement and branding and design through to
distribution, transportation, marketing and sales.
The company’s latest acquisition announcement will see
TransCanna picking up such well-performing Goodfellas Group LLC
brands as Daily Cannabis Goods, which saw more than 2,100 units
shipped during its first month in August of last year before
breaking the 10,000 mark just four months
later. TransCanna anticipates adding at least three more items to
the Daily Cannabis Goods product mix and also managed to pick up
the proprietary, in‐house Simple brand of user-friendly Simple Kit™
products in the Goodfellas Group deal, which are specially crafted
to give new users a positive first cannabis experience.
Forged in the Crucible of a Nascent
Industry
The company cut its teeth amid the growing pains of California’s
burgeoning — but still very young — recreational market. Today
TransCanna appears well poised to successfully deliver on a
closed-loop cannabis model that can cost effectively bring goods to
market while still dealing with prevailing regulations.
CEO TransCanna Jim Pakulis spoke in
mid-April of the company’s tremendous efforts to complete the
acquisition of what is arguably the largest vertically-integrated
cannabis focused facility in California. The $15 million
acquisition consists of a 196,000-square-foot, turnkey
manufacturing facility on a 5.5-acre piece of land in Modesto,
estimated to be able to support expansion of the site with an
additional 400,000 to 600,000 square feet of facilities for
cultivation.
Total revenues from the acquisition, including manufacturing,
extraction, distribution and cannabis sales, are currently
projected to be from $220 million to $363 million a year. A recent
independent third‐party business valuation firm’s conclusion put
the enterprise value of the proposed business, at around $50 to $75
million. That estimate
includes things such as the value of the recently renovated
manufacturing facility’s institutional-grade packaging and
extraction equipment. This appears to be a sweetheart deal, placing
the company in a solid position to take advantage of a potential
supply shortfall in California. Similarly, the move sets up
TransCanna for success on the rapidly developing national and
international stages.
Growth Financing Gone Well
In addition, the company originally announced a CD$10 million
broker-syndicated private placement but within short order was
oversubscribed to CD$16 million. The funds were used to assist in
the aforementioned acquisition and has already executed a sublease
agreement for an additional 10,000 square feet of multipurpose
floorspace in Adelanto, California.
This satellite facility is the first of five anticipated
satellite distribution network facilities that will be
strategically located throughout the state to support TransCanna’s
goal of quickly having 15 reliable, consistent, branded products on
offer at the scale necessary to keep the business growing alongside
demand. The completely fenced Adelanto complex is reportedly of
superior quality and already has existing round-the-clock armed
security, making it a solid deal at a negotiated price of $2 per
square foot per month for four years, which is roughly 30% below
current market rates.
Furthermore, TransCanna recently applied for a permanent
manufacturing, distribution and transportation license for
Adelanto, proving that the company’s immediate focus is on ensuring
city and state licenses are in hand as soon as possible. The
company anticipates applying for licenses with the local regulatory
body in Modesto by the first of June. The company anticipates being
able to prepare and package the Daily Cannabis Brand half gram
pre-rolls at the facility, then transport them straight to
dispensaries without the need to involve a third party or incur any
additional expenses.
Cannabis Companies Making Big Moves
Canopy Growth Corporation (NYSE: CGC) (TSX:
WEED), one of the largest players in the space, has made
big moves lately to expand its footprint in both North American and
Europe. In April, Canopy announced a definitive agreement to
acquire leading multistate operator Acreage Holdings Inc. outright
in a deal valued at around $3.4 billion. This massive deal could
make Canopy a real juggernaut, with a leading position in every
major international market for legal cannabis. The move will give
the company a sizeable presence in the United States as Canopy
rolls out its U.S. hemp operations in parallel, which will span
cultivation, extraction, processing, and packaging.
DionyMed Brands Inc. (OTCQB: DYMEF) (CSE:
DYME), while still a relatively small company compared to
others in this area, has nevertheless put together a compelling
model. The company’s approach spans multistate cannabis brands as
well as a distribution and direct-to-consumer delivery platform.
The company recently managed to secure a roughly $7.34 million
agreement with a syndicate of agents co-led by Canaccord Genuity
Corp. and leading Canadian independent investment dealer Cormark
Securities.
Cresco Labs Inc. (OTCQX: CRLBF) (CSE: CL) has
also been making big moves in the sector, recently prequalifying
for a cultivation and processing license in Michigan and signing a
letter to acquire VidaCann, one of the biggest and most advanced
medical cannabis providers in Florida. The VidaCann deal would put
Cresco in operation in six of the country’s most populous states,
granting access to some 140 million potential customers (roughly 65
percent of the total addressable U.S. cannabis market).
Cresco also signed a definitive agreement in April to acquire
California-based CannaRoyalty Corp. (OTCQX: ORHOF) (CSE:
OH), which does business under the well-known Origin House
moniker as a leading cannabis products distributor, as well as a
provider of brand support services. CannaRoyalty has built a
serious operation with more than 50 brands under the Origin House
name. The Cresco Labs acquisition would harness the branded product
development and distribution expertise of two of the industry’s top
players.
TransCanna is banking on the future of intelligently executed
cannabis brand offerings, not just in California and North America
but around the world as well. With longer-term projections of
$57 billion by 2027 for the global market, the
company could be setting the cornerstones today of a self-contained
ecosystem weed empire that may one day see its premium brands in
dispensaries all over the globe. Investors may want to keep tabs on
TransCanna as the company’s growing brand portfolio and physical
presence in California begin to bear fruits.
For more information on TransCanna Holdings, visit TransCanna
Holdings Inc. (CSE: TCAN) (XETR: TH8)
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