July 10, 2018 MJ Shareholders
July 10th, 2018
At the dawn of cannabis legalization in Canada, several companies are looking to become the biggest players in a market estimated to be worth CAD$9.2-billiondollars by 2025. One licensed producer (LP) of cannabis in Canada quickly rising to the top is Organigram Holdings Inc.(TSX VENTURE: OGI) (OTCQB: OGRMF). Already reputed across the country for their high-quality medical cannabis, Organigram is set to launch several new adult-use recreational cannabis products when the country goes fully legal on October 17th. The New Brunswick-based company has already announcedseveral high-profile partnerships, including one with Trailer Park Productions, the team behind the wildly popular Netflix show, Trailer Park Boys.
CFN Media caught up with Organigram Chief Commercial Officer Ray Gracewood at the O’Cannabiz Conference & Expo in Toronto in June, where Gracewood offered comment on the emerging Canadian market and Organigram’s expert strategies for both medical patients and recreational consumers.
CFN Media: How was Organigram conceived and how has the business evolved since its inception?
Ray Gracewood:The company was founded in 2013, and we were issued our license for cultivation and sale in April of 2014 – we’ve been shipping product ever since. The company was founded in Moncton, originally at a location that was about 31,000 square-feet in size. Since that time, we’ve increased our footprint and expanded our campus – which still includes that original space – but is now extended essentially down the entire block. Our proposed footprint, through to the end of our 2020 expansion, has us at about 500,000 square-feet. All that space will have our custom tiered growing system incorporated. In terms of square footage, we actually triple our production capacity; unique to the Canadian market, we are the only LP in Canada that grows on three tiers to maximize the space.
We originally chose New Brunswick as a place to do business for a few reasons. First, the province is incredibly supportive of the cannabis industry and has been an incredible partner for us to work with. They see it as a significant economical and job creation opportunity for the entire province – and they’re right. Second, New Brunswick has some of the lowest electricity costs in the country, as well as very competitive labour cost with a very educated labor force. Those kind of business realities make New Brunswick a great location for us. We see that as a significant competitive advantage.
CFN Media: With Canada on the verge of legalizing recreational cannabis, what is your brand strategy?
RG:I think it’s fair to say that we’ve applied more thought into our brand strategy versus in any other producer in Canada. For the longest time, we’ve believed the market to be dominated by brands and segmentation and we were ecstatic to announce our adult recreational brand platforms earlier this year. We’ve developed four specific adult-use brands through different research projects, as well as some product development projects that we’ve done within the medical space. The first is The Edison Cannabis Co., which includes both Edison and Edison Reserve (our top-tier product line).
Our roots, for lack of a better term, are in organic production and with that in mind we’ve announced an organic brand called Ankr Organics. We are incredibly comfortable with our demographic target on this brand and understand that there is a really interesting intersection between organically produced products and recreational cannabis consumers. To further build on the authenticity we bring to the organic process, we are one of the most experienced licensed producers when it comes to growing organic cannabis in Canada. Finally, we have an arrangement with Trailer Park Productions, and have created a brand called Trailer Park Buds. It’s focused towards the value-conscious consumer that doesn’t take life too seriously.
CFN Media: Where is the Canadian market trending?
RG:I think it’s going to be a very interesting landscape that we will continue to monitor. The reality is that we’re inheriting, to a certain extent, the illicit market demographics as a starting point. But I think that in a lot of cases we need to take those insights with a grain of salt and understand that a highly regulated market will come with its own dynamics when it comes to consumer trends.
We believe the adult recreational market will be successful based on four key components: product quality, price, convenience and consumer experience. I think that, as an industry, if we deliver on those four things we can be competitive. They also offer us four different levers that can allow us to get more aggressive with any of those elements to ensure we’re competitive with the illicit market. Looking further down the line, developing the product innovation funnel will creative competitive advantage. Over time, consumers will think of cannabis infused products differently and will start to expect a better social experience that will include infused cannabis beverages and other no-calorie and discrete forms.
Cannabis consumers will quickly follow the trends of other consumer packaged good products, which is generally away from the middle. There will be a focus on value in the early days of the industry, but I think the future is in premiumization & diversification. As a company, we’ve developed our portfolio to fit both of these needs, but I think the bigger opportunity over time is in defining the premium opportunity and making it an intimate part of your brand.
CFN Media: Why should potential investors consider Organigram?
RG:It’s clear that Organigram is well-positioned as one of the best value stocks within the top tier of Canadian licensed producers right now. We have one of the strongest management teams in the industry and we’ve been told again and again that we are running the most impressive production facility in Canada. We’ve done an excellent job of ensuring that we can put our money where our mouths are when our jurisdictional partners come calling in October.
Anyone who has walked through our facility has seen what we’ve been able to do with product quality, and can see first hand the proprietary software that allows us to do what we do with scale. We’re well-resourced with the capacity to be a leader within the space, and have developed a strong go-to-market strategy that includes a well defined brand strategy and distribution plan. I’m unsure if any licensed producer has been working longer to develop relationships right across the country to ensure that our products will be well distributed and front line staff will have a solid understanding of what the Edison Cannabis brand stands for.
I’d also say that, as of late, we’ve taken great strides in building out our international team and focusing efforts against priority markets. Already we’ve made announcements around business in Australia, Germany, Serbia and we’ve got several other initiatives in the works.
Finally, I’d say that we’ve done some great work in partnering with companies that have very strategic technologies that give us a great sense of where the market is going. We recently announced a new relationship with Hyasynth Biologicals, who are focused on producing yeast-derived cannabinoids. Essentially when scaled up, the process and technology is a game-changer.
CFN Media: What are your short and long-term projections for growth?
RG:Currently, our production capacity is about 36,000-kilograms and our target for the end of 2020 is to grow to 113,000-kilograms of product. As we see that market growing, we believe that evolution from the illicit to the licit market will take time. The market is set to grow exponentially. It’s not going to be a light switch moment, but it will happen exponentially over the next five to ten years. We’re preparing our production capacity accordingly.
We also believe that there are huge volume opportunities internationally. As our production capacities grow, so will our international business. In international markets where their medical business is essentially the only legal business, those cannabis oil products that we are now developing are in huge demand and that’s likely to be the part of the market where we’ll see the most growth.
I think also it’s important to note that, over the next three to five years, we’ll see a huge evolution from dried flower to edible extract concentrate products here in Canada. We’re also preparing for that, both from a product development as well as a growing side. We see huge volume upsides there as well.
CFN Media: What else should people know about Organigram?
RG:When we talk about what’s most important to us right now, it’s about brand development, it’s about distribution across Canada, it’s about international opportunities, and it’s about what makes operating in New Brunswick special. It’s about our management team and having the ability to scale up, both from a production facility perspective as well as an overall business perspective.
I think a few things get lost on people; funded capacity is one thing, and market cap valuation is another, but being able to operate a capable business within this space, I think there will be very few companies that are going to be able to deliver when the rubber hits the road. I’d be confident in saying that Organigram is certainly going to be one of those companies. I think all the pieces of the puzzle are in place. Right now, it’s a great value compared to our peers
As we get further and the market itself develops, it’s going to become more and more clear that, as a producer and as a responsible business, I think we’re focused in the right directions and understand the massive opportunities in front of us.
About Rachelle Gordon
Rachelle Gordon is a Minneapolis-based writer. She was the president of her college’s chapter of Students for Sensible Drug Policy and worked in Amsterdam for a brief time. Find her online at www.rachellegordon.net.
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