Craft Cultivators Glean Premium Prices as Consumers Demand Top Shelf Cannabis
Cannabis is most commonly associated with its flower form, however, innovative producers within the industry have developed new products to stand out among the competition. Specifically, in Canada, many producers are designing new products such as concentrates, extracts, and edibles for consumers. Notably, these products are much more potent and effective than traditional flower, which is why many consumers are beginning to shift towards less conventional delivery methods. Moreover, the price of flower has increased since Canada legalized adult-use back in October 2018. According to Statistics Canada, Canadians paid 56.8% more for dried cannabis in legal channels than they did from illicit sources since legalization. Following Canada's legalization, consumers were paying on average of approximately CAD 9.99 (USD 7.47) per gram compared to the illicit source prices of CAD 6.37 per gram. Health Canada noted that prices in Manitoba prices surged as high as 27.7% per gram, while British Columbia's prices increased by as little as 3.7%. Typically, the price of cannabis is directly correlated with costs of cultivation and federally or provincially mandated taxes and fees. For instance, the Department of Finance Canada states that in most provinces, cannabis excise taxes is CAD 1.00 per gram, of which the federal government collects CAD 0.25 and the province collects the remaining CAD 0.75. However, back in the 1980s, Canada implemented a tax increase on cigarettes which ultimately lead smokers to turn to the black market for cheaper alternatives. Canada ended up cutting the tobacco taxes. Similarly, the country's cannabis taxes could potentially be reduced in order to keep consumers away from the black market, as Federal Finance Minister Bill Morneau has pledged to keep taxes as low as possible to keep consumers out of the illicit market and eliminate illegal sources. Furthermore, according to data compiled by Ameri Research, the global legal marijuana market was valued at USD 14.3 Billion in 2016. By 2024, legal marijuana global sales are projected to reach USD 63.5 Billion while exhibiting a CAGR of 21.1% from 2017 to 2024. Pasha Brands Ltd. (OTC:CRFTF) (CNSX:CRFT.CN), HEXO Corp. (NYSE-A:HEXO) (TSX:HEXO.TO), CannTrust Holdings Inc. (NYSE:CTST) (TSX:TRST.TO), Harvest Health & Recreation, Inc. (OTC:HRVSF) (CNSX:HARV.CN), Emerald Health Therapeutics Inc. (OTC:EMHTF) (TSXV:EMH.VN)
The Canadian cannabis tax rates can heavily impact a company's financials, which can ultimately result in unprofitability. Generally, smaller cultivators struggle to keep up with the competition from large corporations that can produce tons and tons of cannabis per harvest. Additionally, with the excise tax rates, it makes it even more difficult for small players to stand out within the market. In efforts to adapt, smaller cultivators have expanded their operations to developing high-quality, premium cannabis. Larger cultivators typically have difficulties producing excellent quality cannabis because of the massive-scale production they're operating. On the other hand, however, smaller cultivators' intrinsically simpler operations allow them to focus more on each individual plant to ensure premium quality. The precise art of tending to each plant is known as cultivating "craft cannabis." Customarily, craft cannabis cultivators focus on organic and attentive methods such as avoiding chemicals or hand-trimming the flowers. Chemicals such as pesticides are usually avoided, however, this requires cultivators to nurture each plant to avoid the possibility of mold or a bug infestation. Furthermore, craft cultivators also have to maintain a stable and adequate temperature and humidity levels, factors which can affect the yield and quality of a harvest. The extensive efforts craft cultivators take to create top-shelf quality cannabis for consumers can be quite expensive compared to mass-produced cannabis. However, many consumers have indicated that they are willing to pay more for a premium and an organic product. According to a 2017 survey conducted by Brightfield Group, it was uncovered that 43% of respondents are willing to pay more for premium strains while 34% are willing to pay more for an organic product. "When it comes to retail, consumers will always pay more for premium-quality products. In the cannabis industry, that means top-shelf genetics cultivated in small batches will fetch higher prices," said Anne Forkutza, former Vice President of Strategic Partnerships and Brand Officer at Cova Software.
Pasha Brands Ltd. (OTC:CRFTF) (CNSX:CRFT.CN) is also listed on the Canadian Securities Exchange under the ticker (CNSX:CRFT.CN). Earlier this week, the Company announced, "the acquisition of the CBD Therapeutics brand - a leading pre-legalization manufacturer and purveyor of cannabidiol (CBD) product based in British Columbia.
Since its inception, CBD Therapeutics has supplied solvent-less full spectrum and isolated CBD formulations to the pre-legalization market throughout Canada, and increased access to both products and education. Since ceasing sales on October 17, 2018, CBD Therapeutics has been preparing to enter the regulated framework. Pasha has acquired all of the brand's trademarks, names and intellectual property and will re-launch the brand in the Canadian regulated market in the very near future.
'Joining Pasha Brands is yet another step forward in our mission of making CBD products more accessible,' said James Whitehead, CEO of CBD Therapeutics. 'Working with a collective of smart, like minded individuals and brands will help open opportunities for CBD Therapeutics and aid our growth. It already has.'
CBD Therapeutics is one of the only companies in the CBD space that has built and offered an educational curriculum on CBD that can be accessed for free. They credit their focus on education as one of the reasons they are Canada's largest direct-to-consumer retailers of CBD.
'We're thrilled to have acquired one the leading CBD brands in Canada and feel Pasha will benefit from CBD Therapeutics' established client base and brand awareness, as they've made a strong name for themselves in the CBD market,' said Patrick Brauckmann, Executive Chairman of Pasha Brands. 'This addition to the Pasha family is yet another indication of the momentum of growth that Pasha is initiating in the new legal cannabis landscape, while remaining committed to those people and brands that operated in the pre-legalization market and who helped establish the industry in Canada.'
Following the legalization of cannabis in Canada, retailers have experienced supply shortages for all cannabis, but are particularly concerned with keeping highly demanded CBD products on shelves. The popularity of CBD has captured the attention of a variety of consumers, many of whom are first-time users.
Through the acquisition of CBD Therapeutics, Pasha aims to help close the supply gap of CBD and is preparing to take advantage of Health Canada regulations on cannabis edibles, beverages, topicals and extracts, set to become legal later this year.
About Pasha Brands:Based in Vancouver, British Columbia, Pasha is a vertically integrated, prohibition-era brand house firmly rooted in BC's craft cannabis industry, which boasts an international reputation. With proven capabilities in cannabis cultivation, genetic research and development, product processing, and retail, Pasha is uniquely positioned in the new legal cannabis market through its network of hundreds of craft cannabis suppliers under the Pasha umbrella. Pasha subsidiary, Medcann Health Products Ltd., is a Health Canada licensed cultivator and processor with a licence to sell medical cannabis products in Canada. Pasha and BC Craft are also developing a craft cannabis campus, which is dedicated to bringing craft quality into the newly legal cannabis market in Canada. BC Craft is driven to assist craft growers in obtaining security clearance and licensing to grow as micro-cultivators, specializing in education and compliance to bring growers into the regulated cannabis supply market. Pasha's common shares trade on the CSE under the symbol "CRFT". For more information, please visit www.pashabrands.com"
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HEXO Corp. (NYSE-A:HEXO) (TSX:HEXO.TO) is an award-winning consumer packaged goods cannabis company that creates and distributes prize-winning products to serve the global cannabis market. Recently, HEXO Corp has completed the first harvest in its 1 million sq. ft. expansion, marking an important execution milestone in the Company's continuous growth. Since early January, plants have been moving into the greenhouse and the first plants have now been harvested. The Company continues to ramp up to full harvest capacity using the continuous harvest methodology, the latest step towards reaching the full annual production capacity of 108,000 kg of dried flower per year. "Completing the first harvest in our 1,000,000 sq. ft. greenhouse expansion showcases the dedication and hard work of the entire HEXO team," said Sébastien St-Louis, HEXO's Chief Executive Officer and Co-Founder. "We are very proud of our continued ability to execute on our plans, creating value for our shareholders and demonstrating our commitment to our customers. This cultivation milestone means that an expanded HEXO product offering will be available to more Canadians shortly."
CannTrust Holdings Inc. (NYSE:CTST) (TSX:TRST.TO) is a federally regulated licensed producer of medical and recreational cannabis in Canada. Recently, CannTrust Holdings Inc. announced that it is establishing operations in the United States ("U.S."), starting in the State of California. CannTrust has signed a non-binding letter of intent ("LOI") that will provide access to over 3,000 acres of farmland for hemp production with Elk Grove Farming Company, LLC ("Elk Grove"), a diversified farming company with operations in the State of California, to secure low-cost hemp with high cannabidiol ("CBD") content. CannTrust and Elk Grove will each have 50% ownership of a new entity (the "Joint Venture"). The opportunity in the U.S. for CannTrust is to become a trusted supplier of consistent, standardized and high-quality hemp-derived CBD formulations at scale. The Company believes there will be increasing demand for hemp-derived CBD formulations from international retailers and product manufacturers, and those organizations require expertise in genetics and value-add processing to ensure products are desirable and meet the highest safety standards. "This agreement represents another bold move for CannTrust. Our U.S. operation is expected to deliver a significant increase in low-cost production capacity, which will leverage our expertise in standardized CBD-based product formulation, and will give the Company a foothold in the largest international CBD market in the world with an experienced and knowledgeable partner," said Peter Aceto, Chief Executive Officer. "Following our successful equity offering, we have the liquidity we need to fund our ambitious growth plans including our greenhouse expansion in Niagara, our outdoor cultivation operation in British Columbia, our global footprint expansion and now our U.S. operation. We continue to focus on delivering on our vision of becoming a global provider of innovative cannabis-based and hemp-derived products."
Harvest Health & Recreation, Inc. (OTCQX:HRVSF) (CNSX:HARV.CN), headquartered in Tempe, Arizona, is a multi-state cannabis operator (MSO) and vertically-integrated cannabis company. Harvest Health & Recreation, Inc. was recently awarded a dispensary license to operate in Pasadena1, (subject to the local Conditional Use Permit process and state regulatory requirements), marking the seventh California license for the fast-growing company. Harvest was among the top-scoring applicants from a pool of 128 applications to obtain licenses in the city, receiving top recognition for its high-level of sophistication, best-in-class experience, and world-renowned team of experts in operating quality-driven retail stores with a focus on bettering the community. "Pasadena's affluent community and close proximity to the world's largest cannabis market of Los Angeles, makes it an ideal destination for Harvest's growing retail operations that focus on high-quality and safe cannabis experiences and education," said Steve White, Harvest's Chief Executive Officer. "Pasadena's extensive application process and rigorous requirements show the city's commitment to only allowing operations that appeal to the community's prestigious standards. This is a big win for Harvest as we continue to grow our presence in California and drive premiere retail environments that are safe for consumers introducing the people of Pasadena to our leading products, award-winning storefronts and knowledgeable staff."
Emerald Health Therapeutics Inc. (OTCQX:EMHTF) (TSXV:EMH.VN) is a Canadian licensed producer of cannabis. Emerald Health Therapeutics, Inc. recently reported that is has expanded its agreement to purchase harvested hemp flower and leaf, or hemp chaff, from Emerald Health Hemp Inc. ("EHH") from 1,000 to 1,200 acres for 2019. EHH is a wholly owned subsidiary of Emerald Health Sciences Inc. and a related party of Emerald. Based on last year's harvest, Emerald expects production from the 1,200 acres to be at least 270,000 kg of hemp chaff in 2019 with, conservatively, approximately 2% cannabidiol ("CBD") content. Emerald estimates that this hemp may yield 3,500 kg of extracted CBD, which it plans to use to manufacture premium oils, softgels and associated value-added products for Canadian adult-use and medical consumers. "Emerald, through its partnership with the Factors Group and their scalable processing capacity, is uniquely situated to become one of Canada's leading producers of premium CBD products from hemp," said Dr. Avtar Dhillon, President and Executive Chairman. "We established our first-mover advantage in 2018 by securing hemp on a large scale and gaining production insights that will benefit us in 2019. With even more supply contracted for this year, we expect significant near-term growth in this market segment."
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