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.
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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