Service Providers

ICO’s – The New Crowdfunding Platform: Caution, Speedbump Ahead.

As reported by the Globe and Mail on October 23 2017, the Ontario Securities Commission (“OSC”) has approved an Initial Coin Offering (“ICO”), to TokenFunder, representing its first foray into the land of crypto crowdfunding.  Responding to the markets appetite for ICO based financing, and the inherent need to develop a regulatory framework within which they will operate, the Canadian Securities Administrators has instituted a twelve month exemption to TokenFunder from the requirement to register as a securities dealer.

This funding platform is not without risk.  The underlying cryptocurrencies issued in conjunction with ICO’s may not be classified as securities. They do not convey ownership rights of a company, as is the case with the more traditional common shares, warrants, or other equity instruments.  Instead, they tend to carry with them access rights to a product or platform which has been or will be developed by the issuing company.  There is no guarantee the initiative(s) will ever be completed or commercially viable.  Furthermore, ICO’s remain in regulatory purgatory while governments, securities commissions and exchanges struggle to understand the ICO model and how best to fairly regulate it.

When a company undertakes to complete an ICO, it creates its own cryptocurrency and sells a portion of it under the terms of the ICO.  In a perfect situation, the company builds its platform, is commercially accepted, and demand for their digital currency surges, resulting in an appreciation of value for those holding their digital currency.

Cryptocurrencies are designed from the start to share some fundamental characteristics of precious metals.  After their initial issuance, the volume of additional cryptocurrency issued in a given series is structured to decline over time, creating what amounts to engineered scarcity.  This, coupled with potential success of the underlying platform which forms the basis of the ICO, can generate exponential growth in value of the cryptocurrency itself.

Perhaps the best known cryptocurrency, Bitcoin, introduced January 3, 2009 demonstrates the pinnacle to which all ICO’s strive to achieve. As of November 7, 2017, each Bitcoin in circulation is valued at CAD$9,510 each, benefiting from a wildly successful platform, and engineered scarcity, coupled with worldwide acceptance as a conveyance and store of value.  It’s important to note, however, that Bitcoin was first on the scene in 2009, prior to the explosion of the ICO crowdfunding demand.  While Ontario has just now approved its first one, the number of ICO’s worldwide has exploded, showing no signs of slowing any time soon.   With so many cryptocurrencies and platforms emerging, it is uncertain what the impact on individual investors will be as engineered scarcity, one of the fundamental pillars of the cryptocurrency model, is challenged by an explosion of digital currency entrants.

Bitcoin now finds itself facing challenges as its own success has sparked scrutiny.  More and more, digital currencies are utilized as the monetary conveyance of choice for criminal activity.  Many countries have begun the process of formulating policy with respect to cryptocurrencies and ICO’s, with a few restricting or banning outright certain cryptocurrency or ICO activity. As these digital currencies exist outside the influence of governmental monetary policy with central banks unable to manage what may soon prove to be a significant element of the money supply, regulatory concern continues to mount.  Furthermore, with significant and rapid appreciation in value, comes the question of unsustainable demand, further strengthening the mandate of the regulators.

As the OSC blazes its path towards regulating ICO’s in Ontario, investors find themselves faced with opportunity and a degree of uncertainty as the nature and extent of these regulations are as yet unknown.

This story was written by Robert Suttie, Vice President of Marrelli Support Services Inc. and featured in Service Providers magazine.

Learn more about Marrelli at http://www.marrellisupport.ca// and on the CSE website at http://thecse.com/en/services/services-for-listed-companies/marrelli-support-services-inc

Service Providers

FINANCIAL IMPACT OF A REVERSE TAKEOVER WITH A SHELL CORPORATION

One of the popular ways for private companies to obtain a listing status on the Canadian Stock Exchange (“CSE”) is through a reverse takeover (“RTO”) with an existing listed entity. The most common version of an RTO is when a private operating entity merges with a listed (more or less) shell corporation, effected by way of exchange of equity interests, which typically results in owners of the private entity gaining control of the combined entity after the transaction.

Understanding how the financial records of the resulting combined entity shape up is an essential factor for the leadership of the private entity to gauge the breadth of such a transaction. It is however often overlooked amidst other regulatory requirements. The International Financial Reporting Standards (“IFRS”) and its interpretation, provides specific guidance around this area, which is the subject of this piece.

Despite the public shell corporation issuing shares, from an accounting perspective these transactions are considered to be capital transactions of the private entity looking to obtain the listing status of the non-operating shell corporation. They are therefore equivalent to the issuance of shares by the private entity to acquire the net assets of the public shell corporation. Unlike a straight acquisition achieved through exchange of equity interests, where the accounting records are a continuation of the entity issuing shares, in an RTO, the historical financial records of the private entity are retained. The RTO is accomplished by recognizing, in the financial statements of the private entity, the net assets of the publicly listed shell corporation in return for shares “deemed” to be issued by the private entity to obtain a control position in the combined entity. The equity structure however, (that is, the number and the type of equity instruments issued) of the combined entity, reflects the equity structure of the publicly listed shell corporation, including the equity instruments exchanged in the RTO.

The deemed shares issued by the private entity, which is the consideration it has paid for the acquisition of the public shell corporation, are recognized at fair value and any difference between the fair value of these deemed shares and the fair value of the acquired net assets of the public shell corporation, represents a cost to the private entity. The Interpretation Committee of the IFRS points out that, for the private entity, this difference in fair values is considered to be a payment for service of a stock exchange listing for its shares, and therefore should be expensed through its profit or loss. This is in contrast to the usual treatment of cost of issuing capital, which reduces the value of the capital raised. The leadership of the private entity therefore needs to understand this and evaluate if this is an acceptable impact on their financial reporting.

Although this is a simplistic introduction of what to expect if you choose to obtain a listing on a stock exchange by way of an RTO with a listed shell corporation, accounting for such acquisitions can be quite complex. This could include determining the fair value of the consideration for the transaction (i.e. the value of the deemed shares issued by the private entity), the fair value of the net assets of the public shell corporation, non-controlling interest considerations, earnings per share calculations, to name just a few. The key thought is to ensure to involve your accounting advisors, amid other consultants, at the right time in the whole process so you have a complete picture of the impact of your desired transaction.

This story was featured in Service Providers magazine.

Learn more about Avisar at http://avisar.ca/ and on the CSE website at http://thecse.com/en/services/services-for-listed-companies/avisar.

CSE Issuer Stories, Magazine

Canntab Therapeutics: Merging medical cannabis with pharmaceutical expertise

The cannabis market is full of potential and creativity, with companies introducing new and innovative products every day. Dispensaries have gone way beyond smokable marijuana, offering customers everything from cannabis-infused edibles like beer and chocolate to personal care products like lotion and eye creams.

But the cannabis market isn’t all fun and games. Canntab Therapeutics Ltd. (CSE:PILL) is looking to fill a need in the pharmaceutical space.

Based in Ontario, the company was founded by pharmaceutical industry professionals. Chief Executive Officer Jeff Renwick was the former CEO of Orbus Pharma Inc., a generic drug developer and manufacturer. Prior to that, he was at Indukern Chemie AG, a Swiss pharmaceutical company.

Although once a private company, Canntab merged with Telferscot Resources on April 20, 2017 — a date synonymous with marijuana. Exactly one year later, the company went public on the unofficial pot holiday.

The company is presumably the first to offer medical marijuana in pill form.

The technology behind the pill was licensed from a predecessor firm. Since then, Canntab has filed seven patents for its two products. Approval from Health Canada to proceed with third-party clinical trials is in the works.

When a patient smokes marijuana or eats cannabis-infused edibles, it can be difficult to measure exactly how much of the medicinal elements are being delivered.

Chief Financial Officer Richard Goldstein also points to the potential danger of cannabis products being created by those without a pharmaceutical background, without GMP, or “Good Manufacturing Practices,” in place.

“A lot of it is being made in home kitchens and home basements. They’re not being made in the GMP environment. And yet, the marketplace continues to eat this stuff up. It’s quite scary at a level,” says Goldstein. He recalled a story where the tablets were so poorly pressed that they weren’t able to be dissolved in a patient’s system before exiting.

In contrast, the company’s extended-release tablets offer a consistent, stable dose each time and aren’t susceptible to spoiling and converting into other cannabinoid elements when exposed to certain environments like an oil-filled gel capsule would be.

“In true pharma, the only time you use a capsule to deliver medication is when you can’t have a tablet for that medication. If you can have a tablet, that is always the first choice,” says Renwick.

The tablets are intended to treat a variety of disorders, including Post-Traumatic Stress Disorder and arthritis. They can also act as a pain management and appetite loss drug for patients undergoing cancer treatments.

The pill delivery mechanism may also be the first step in reducing the stigma of marijuana by removing the smoking aspect.

Renwick recently had a conversation with a landlord who was spending hours in court after tenants complained about neighbors smoking marijuana, some of whom were using it for legal, medicinal purposes. The pill can be a smokeless alternative in areas where smoking isn’t allowed.

Canntab believes the pill alternative will also appeal to senior citizens who take multiple pills per day, especially in assisted living facilities where smoking may not be allowed.

“They’re not going to smoke. They’re not going to eat gummy bears, but they’ll take a pill if it makes them sleep better,” says Renwick.

The company does have a sleeping pill in the works, although clinical trials will still need to be performed.

And a future product line may include cannabis tablets intended to specifically treat sleep and social anxiety disorders.

While the legal landscape is always evolving from place to place, the company has come to agreements to expand outside of Canada.

Canntab is working on import and export permits, with agreements already in place to send tablets to Australia and Germany. Deals with Poland, Spain, and Greece are also being discussed.

Moving into the U.S. market is challenging. Recreational marijuana use is already legal in nine states, including California, Washington, Oregon and Nevada. Medicinal marijuana is legal in a total of 29 states, including those West Coast states as well as East Coast states like New York and Delaware. But on the federal level, cannabis is still illegal.

“Ultimately, we want to get something going in the US, preferably in California,” says Renwick.

The company has said it has a “soft plan” to get there by perhaps 2019. A lawyer is looking into licensing in California on its behalf.

A 2017 Gallup poll found that 64% of Americans support the legalization of marijuana.

Looking to the future, Canntab’s CFO is confident that the company is in good financial shape.

Goldstein notes that the company’s immediate cash needs have been fulfilled after going public.

“The good news is that we have lots of money to do what we want to do in the short term and then as opportunities present themselves, we’ll seek capital if necessary,” says Goldstein.

This story was featured in The Public Entrepreneur magazine.

Learn more about Canntab Therapeutics Limited at http://canntab.ca/ and on the CSE website at http://thecse.com/en/listings/life-sciences/canntab-therapeutics-limited.

CSE Performance

Interview with Richard Carleton First Half Review — June 2018

Earlier this month, CEO of the Canadian Securities Exchange, Richard Carleton, sat down with Peter Murray of Kiyoi Communications to discuss a number of topics related to the progress of the CSE in 2018 so far, the investment landscape for growth-stage companies and what’s on the horizon for the CSE heading into the second half of the year.

Scroll down to read the full transcript of this interview. For ease of navigation, a list of hyperlinked topics is included below.

  1. First Half Performance in 2018
  2. Blockchain-based Clearing and Settlement – Updates
  3. Cannabis Sector Perspectives
  4. Growing the CSE Brand
  5. Keeping Pace with Expansion
  6. Trading Enhancements & Liquidity Growth
  7. Share Structures and US Issuers
  8. What’s Next for 2018

First Half Performance in 2018

PM: Performance at the CSE as measured by standard metrics – listings, financings, trading volume – was strong yet again in the first half of 2018.  Can you recap some of the key numbers for us?  And were there any trends that you feel really stood out?

RC: By every metric, we are ahead of 2017’s record pace.  Whether we measure our performance by trading volume, value traded, number of trades, or financings conducted by companies listed on the Canadian Securities Exchange, the numbers are considerably ahead of where we were at this time last year.

I am particularly pleased that on a 12-month trailing basis, companies have raised almost $2 billion via the facilities of the CSE, either through an IPO or as a secondary offering once the issuer was listed with us.

And with every additional listing, we reach a new benchmark in terms of the number of securities trading on the exchange.  We are above 380 securities at this point, and about 360 companies.

I’d also note that this performance comes at a time when the industry in general is not setting new records.  Measures of liquidity confirm that companies listed on the Canadian Securities Exchange trade at better levels than their counterparts on other exchanges in Canada.

When assessing liquidity, we use a measure of share value traded versus market capitalization.  In Canada’s large cap space, approximately 5% of a company’s market capitalization by value will turn over in a typical month.  In the junior markets, that number tends to be a little higher.

On the Canadian Securities Exchange, we regularly see our companies turn over at almost twice that rate.  And in January 2018, when there was an enormous amount of market activity, principally in the blockchain and cannabis sectors, our average turnover was almost 35% of a company’s market capitalization.

In previous interviews, I have talked about some of the challenges and hurdles the exchange has overcome during the last several years.  There was, for some time, a persistent view in investment banking and trading circles that we might not have the liquidity which some of the other trading centres did.  But the statistics now demonstrate that Canadian Securities Exchange issuers are among the most liquid traded instruments in Canada.
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Blockchain-based Clearing and Settlement – Updates

PM: In February, the CSE announced plans to launch a blockchain-based clearing and settlement facility.  That was near the height of the blockchain mania and triggered a tremendous amount of discussion within the securities industry.  What can you tell us about progress since the announcement?

RC: We’ve been working a lot with dealers and other entities involved in providing services to the securities processing side of the business.  And we have also been working with companies who would like to issue tokenized securities.  We’d like to be in a position to offer companies who are interested in raising capital by way of a tokenized security a place not only where they can list – because if the instrument is a security we can list it tomorrow, as a securities exchange – but to extend the full power of blockchain technology to the clearing and settlement process.  By doing so, we can eliminate a lot of cost and friction that exists with the current processes provided by the Canadian Depository for Securities.

One of the principal issues companies deal with is the cost of processing dividend or royalty payments to their shareholders.  The cost of doing this can be prohibitive to smaller companies, or to companies that wish to have a payment stream to shareholders more frequent than quarterly or semi-annual.

The other thing is that the current system is extremely inefficient when it comes to corporate governance.  Shareholder documents often go through multiple hands before they get from the company issuing the document to the beneficial owner of shares.  It goes to the transfer agent, to the clearing and settlement organization, and to the broker before it finally reaches the investor.  What we would like to do is eliminate the middlemen who are not adding value and enable companies to seamlessly communicate with their shareholders.

Take corporate governance as an example.  Proxy voting using the blockchain would be secure and inexpensive.  And going back to my previous example, it would enable companies to design securities where there are regular streams of income from different types of assets that move into the hands of shareholders.

Since we announced our plans in February, we’ve had a large number of people spend time with us from different industries.  For example, royalty streams are very common private equity instruments in the mining industry but less so on the public company side.  Some groups would like to be able to use the power of our system to issue new types of securities to public investors, instead of just to a small group of extremely well-funded private equity participants, as is currently the case.

We are in the process of working through the system we will be offering, though we’re slightly behind schedule from a technology perspective.  We had a significant new release of trading system technology which consumed a little more of our resources than I had hoped.  But I will say that the reception we have received from the industry – be it the investment banking side, the trading side, or the back-office side – is extraordinarily enthusiastic and supportive.
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Cannabis Sector Perspectives

PM: The CSE continues to attract new issuers doing business in the US cannabis market.  What are your latest observations on the sector, and can we anticipate more listings to come?

RC: It does seem that a lot of people who were invested in Canadian MMPR (Marihuana for Medical Purposes Regulations) licensees over the last couple of years have shifted their investment focus to companies with exposure to the cannabis business in the United States.  Quite a few large US-based companies have listed on the exchange recently, and more such companies are currently in the application pipeline.  And, clearly, they are being funded by Canadian and US investors.  Pre-IPO financings are heavily subscribed, and often oversubscribed, so we are far from being at the end of investor appetite for the cannabis space generally, and companies with a US focus specifically.

We are heartened by some of the regulatory developments in the United States.  It appears that there may well be a federal bill that provides additional comfort to companies operating within the legal framework at the state level, such that they will not be subject to federal prosecution, which would obviously benefit the entire sector.  We find ourselves in a situation where the Canadian public markets are funding the rise of a new and potentially quite large and interesting industry in the United States, and it really shows no signs of slowing.
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Growing the CSE Brand

PM: As noted earlier, demand by entrepreneurs to list companies on the CSE remains strong.  Your fee structure and streamlined listing process are a big reason why, and it doesn’t hurt that the exchange works hard to support its issuers with outreach events, visits overseas, and recently the launch of a new magazine, Public Entrepreneur.  Can you talk about why you devote so many resources to these efforts, and the feedback you receive from issuers and investors?

RC: I’ve commented before that after taking this job I learned that the brand of an exchange – brand awareness and brand identity – is extraordinarily important.  In order to reach the level of acceptance we now enjoy, it’s been necessary to assure people across every part of the industry – from issuers to dealers, traders, investment bankers, and, of course, investors – that we are a well-regulated exchange, and that we are thought-leaders committed to supporting the efforts of our issuer companies to achieve the kind of investor access and visibility they might potentially get with other marketplaces.  And instead of just comparing ourselves to other markets, we wanted to do a superior job so that investors interested in the types of issuers we have could get efficient access to information about them.

That’s really what has directed our efforts – awareness efforts with different brokers and in different marketplaces to provide our issuers with better access to capital and to secondary market trading liquidity.  That explains, for example, the work we have done with the OTC Markets Group in the United States, and some of the work we have done internationally with brokers to increase their coverage and visibility of CSE listed companies through their networks.

We are really committed to building our brand and providing everyone with a degree of confidence that we are a responsible, reputable, accessible, fair, and cost-effective source for capital, as well as a provider of robust and cost-effective secondary market liquidity.
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Keeping Pace with Expansion

PM: The CSE’s Vancouver team just moved into a new office at the beginning of June and you’ve added some more members to the organization, as well.  Tell us about expansion of the exchange on the corporate side and the benefits this has for issuers.

RC: Our focus has really been in two areas: our sales and marketing group as well as in our issuer regulation group.  Let me talk about the latter first.

As noted, the exchange is growing very, very quickly and we continue to receive listing applications at a record rate.  As a result, we have retained a number of additional professionals to help us maintain service levels.

Although some nasty rumours have been spread about our timelines extending, a cool-headed review of the statistics shows that our turnaround time is about the same as it was over the last three to five years.  And I am pleased about that because I can assure you we are handling a significantly higher volume of business these days.

On the sales and marketing side, we are expanding to better promote the exchange within specific markets, particularly Toronto and Vancouver.  We know that we need to have team members charged with the responsibility to meet with the investment banking and dealer communities to further build our core message, which is that we are the best place for companies, especially in the earlier stages of development, to seek public capital.

We’ve invested in that effort with new hires in Vancouver and Toronto and we plan to become even more active in hosting events, showing our thought-leadership, and helping our issuers tell their stories to an ever-broadening audience of investors.
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Trading Enhancements & Liquidity Growth

PM: Is there anything new on the trading platform front that dealers and professional traders should be aware of?

RC: We just had a new release of our trading system technology, and while there is nothing bold in the features and functionalities, we are constantly refining this service offering by providing different order types that can be used by the various players in the marketplace.  And we do this with a view to maximizing the liquidity that issuer companies enjoy from being on the Canadian Securities Exchange.

What we are seeing with the increase in volume is the arrival of what some call a virtuous liquidity cycle, where, because there is more trading and participation, interest grows from new participants, especially internationally, and that drives more volume.  The old saying in the market that liquidity begets liquidity is something we have definitely been seeing.  The pace we are at now is roughly 10 times where we were just two years ago.  It is magnificent progress that we have managed to make in a relatively short period of time.
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Share Structures and US Issuers

PM: The listing of subordinated voting shares by MedMen Enterprises and FSD Pharma during the half generated a lot of comment.  Can you walk us through the issues involved and give us some perspective on how to interpret those decisions?

RC: There are two ways of looking at it.  The first is that subordinated voting shares have been a feature of the Canadian public equity markets for a few generations.  And the fact that they are now showing up on the Canadian Securities Exchange is probably as strong an indication of our maturity as any I can cite.

If you go back in Canadian corporate finance history, they were used when there was a founding individual or family that wanted to retain a control position in a company but raise equity from outside investors at the same time.  Really, we have the same dynamic in play with the companies who have listed these subordinated shares.

The second component is that US issuers are essentially required to have a majority of their shares issued outside of the United States in order to not become reporting issuers in the United States, which for a number of cost reasons they would prefer to avoid.  Directors and officers insurance premiums are considerably lower in Canada, legal and civil liability risks are lower, and audit fees are less because in Canada you don’t have Sarbanes-Oxley compliance in addition to your regular public audit.  Regulatory fees are higher in the US, too.

If you can avoid having to become an SEC (US Securities and Exchange Commission) filer, that is a positive thing for a company from a cost perspective.  And if they issue the majority of their shares outside of the country, that is a legitimate way to not be required by the SEC to become a US reporting issuer.

I think it is a structure you are likely to see more of with companies we have looking to list in Canada.

Now, we need to make sure that the holders of those securities have a variety of protections in the event of mergers and acquisitions activity and some other issues, but we are aware of these concerns and are working with securities regulators and the companies on those questions.
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What’s Next for 2018

PM: The CSE is clearly coming off a very successful first half.  What initiatives are on the go for the balance of 2018 to maintain the momentum?

RC: With assurance, we know we will continue to be listing companies at a fast pace because of the number of applications and conditional approvals we are working on at the moment.  We have more than six months of business in the queue, if you will.

We will continue to work on developing the clearing and settlement system for tokenized securities.  That will be a key focus.  We also expect to welcome our first Israeli companies in the second half of 2018.  I have visited Israel twice in the past six months with a view to tapping into one of the world’s most dynamic start-up cultures and to provide these companies with a very cost-effective means of coming to North America, becoming a reporting issuer, getting a listing on a recognized stock exchange, and also building a shareholder following and profile in the United States by way of a quotation on the US OTC market.

We think that is very powerful, not just for Israeli companies but also for other international issuers looking to access public capital.  For example, we expect to visit Singapore later in the year, and we have also had discussions with companies located in Jamaica, in Colombia, and recently met with a delegation from Barbados on some listing opportunities there.  In summary, we’ll do more of the same, but I would expect to see an increasingly international flavour among our issuer community as we progress further into 2018.
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CSE Issuer Stories, Magazine

Cannex Capital Holdings: Funding and expertise to help young cannabis businesses realize their potential

With hundreds of cannabis companies popping up over the past few years, it is perhaps unsurprising to see some consolidation in what, right now, is a very hot sector.

Cannabis – or weed or pot or whatever you want to call it – was, for a long time, looked down upon by many members of society who thought of it as a drug for slackers and spotty teenagers.

That image has certainly started to change as an increasing bank of research suggests cannabis – or more specifically the stuff in it – has a number of positive uses, including as a treatment for things like stress and chronic pain.

Lots of companies have emerged to try to get a piece of this lucrative pie – some analysts think it will be worth US$180 billion within just a few decades – which has created a very fragmented market made up of small firms which don’t always have the experience or the resources to thrive.

That’s where Cannex Capital Group (CSE:CNNX) comes in. The company joined the Canadian Securities Exchange in March, raising US$48 million from investors, including some “blue-chip institutions”, in the process.

Cannex accelerates business growth for small, revenue-generating companies by acquiring them and giving them the support, both financially and managerially, to grow into sustainable, large-scale businesses.

“There are lots of companies in the cannabis sector that are just starting off and many of them are going to fail because they don’t know how to operate a business at scale,” says Chief Executive Officer Anthony Dutton.

“We’ve already proven that we know how to do that, we’ve been successful at that which means we’re going to be successful at it going forward.”

The ‘we’ Dutton refers to is himself and his two main operating partners from Washington State; Cannex Chief Operating Officer and Director Leo Gontmakher and Director Jerry Derevyanny, who is also Cannex’s Executive Vice President of Corporate Development.

Having worked in the corporate finance business for the better part of 25 years, Dutton brings solid financial experience to the operation, but as he openly admits, wherever he has been he has always had a solid operating team – in this case Gontmakher and Derevyanny.

The duo formed the top brass at BrightLeaf, a cannabis holding company which was acquired by Cannex for US$36 million as part of Cannex’s initial public offering in March and is the firm’s foundation asset.

BrightLeaf’s strategic operating tenant is Northwest Cannabis Solutions – the biggest grower and processor of cannabis in Washington State.

If the structure sounds a little weird, don’t be alarmed. As Dutton explains: “The reason we’ve done it this way is for licensing requirements. There’s nothing nefarious, it’s just the way the deal had to be structured to follow Washington law to the letter.”

NWCS has a couple of manufacturing facilities where it grows “premium” cannabis, some of which it uses for its own derivative products (more on those later) and the rest it sells on to retailers under the ‘Private Reserve,’ ‘Legends,’ and ‘Funky Monkey’ brand names.

While NWCS is the largest cultivator in Washington, it also purchases significant quantities of trim and full flower cannabis from third-party growers, which, along with some of its own trim, it extracts and processes into two types of extract: tetrahydrocannabinol (THC), which is the active substance to create the “high” feeling of marijuana, and cannabidiol (CBD) distillate.

“We [then] refine it and infuse it into what are called derivative products – so everything from creams to vape pens to chocolates to candies,” says Dutton.

That’s the main arm of NWCS’s operations: extracting the oils from the plant and then using it to create a range of infused products.

NWCS has a host of brands including Magic Kitchen (edibles) and Evergreen (vaping cartridges), in addition to its aforementioned cannabis flower labels.

“We’re very focused on quality, so we have to focus on brand; brands are very important,” said Dutton.

“There’s a reason why people buy Coca-Cola and not some generic cola. Ultimately in the cannabis business, brands are going to be the dominant element of value and we want to make sure we own, manufacture, and distribute some of the best brands.”

It is perhaps no surprise, then, that the second company to join the Cannex stable – Jetty Extracts, which was acquired in April for US$22.5 million – is also home to some popular brands in California that have a loyal following.

Like BrightLeaf, Jetty, which specializes in extracts and vaping products, also boasts a strong management team who aren’t newbies to this nascent industry. As Dutton highlights, “that’s the kind of leadership we’re interested in.”

Jetty is significant because it takes Cannex into the Californian market – comfortably the biggest in the US. By 2020, it is estimated that the state will be raking in more than US$1 billion a year in cannabis taxes alone.

That isn’t enough to satisfy the ambitious Dutton though, who has grand plans to take Cannex across the United States and around the globe in the not-too-distant future.

“We’re already in two states and by the end of this year I want to be in two more US states and one foreign country,” he proclaims.

“Within five years I’d like to be in every legal US state, I’d like to be a coast-to-coast consumer-branded company and I’d like to be in three to five international jurisdictions.”

Acquisitions in the booming cannabis industry are unlikely to come cheap, but Dutton isn’t too concerned about this for now. Cannex has US$15 million in the bank and is already cash-generative, so he says there is no need to raise money in the immediate future.

He is acutely aware that at some point, though, he will have to go back to the markets to fund the kind of rapid growth he wants, but he doesn’t expect it will be a challenge to find people willing to back him with their cash.

“The thing that has really impressed upon me in the past couple of months is that investors now want to invest in this sector. They don’t want to start investing in a company that might start generating revenue next year [though], they want a company that’s doing it now. So, for that reason, we’re getting a huge amount of interest.”

This story was featured in The Public Entrepreneur magazine.

Learn more about Cannex Capital Holdings Inc.at http://www.cannexcapital.com/ and on the CSE website at http://thecse.com/en/listings/life-sciences/cannex-capital-holdings-inc.

CSE Issuer Stories, Magazine

Friday Night: Focus on specific US markets reflects outlook for national, regional catalysts

Brayden Sutton is one of the pioneers of the modern Canadian cannabis industry and is also fast becoming an authority on the business in the United States, where he believes resources are currently better deployed in most cases.  Public Entrepreneur spoke with Sutton, Chief Executive Officer of Friday Night Inc. (CSE:TGIF), recently about the different outlooks for the two markets.

We’ll get into the US regulatory environment around cannabis and your opinions on cannabis stocks in a moment, but first can you explain what Friday Night does and why you chose the US market as your focus?

Friday Night’s primary asset is the very first cultivation license for cannabis in Las Vegas.  We bought this asset early in 2017 and took it public in June of that year.  It was July when things went recreational, and since then we’ve experienced very good growth.  It was all a function of making sure we were ahead of the trends, not chasing them.

I’ve always been one to go where the puck is going to be, not to follow others.  I was a first mover on the investment banking side of the cannabis space with my own capital in 2013, and then in cultivation and later in various forms of extraction and processing.  I have been fortunate to be able to get in front of trends and I knew that Las Vegas was going to be a great market to be in.

One staggering statistic is that the US cannabis market is estimated to be over $75 billion, and yet not one group controls even 1% of that market.  Now that is the opportunity of a lifetime for investors.  I was personally invested over 10 years ago in the Canadian cannabis industry, as the MMAR (Medical Marihuana Access Regulations) eventually gave way to the MMPR (Marihuana for Medical Purposes Regulations), and I co-founded Supreme Pharmaceuticals in early 2014.

I began to feel that from 2014 to 2017 things had become stretched on the Canadian side.  Canada has a very limited market in all aspects.  Despite it leading the world in capital for cannabis initiatives, there are only about 7 million cannabis users coast to coast, so it is a tiny market versus a state such as California or somewhere such as Las Vegas, regardless of whether you are talking adult use or medical.

I know the company has holdings in businesses outside cultivation.  Can you talk about those as well?

We own 91% of a company called Infused Manufacturing, which operates as Cannahemp, and they are solely a hemp-derived CBD business.  It doesn’t come with the same restrictions and the products appeal to a much broader base.  From tinctures and creams to bath bombs and lip balms – there is a very impressive list of products that apply to far more people than cannabis does on its own.

More recently we have acquired Spire Secure Logistics, a Canadian company focused on due diligence and security in the cannabis sector.  That branches us into exposure to Canada and once again a growing trend – there is a major lack of discussion around infiltration of organized crime, diversion of product, internal theft of product, products making it into stores when they should not be there, and many, many other issues.  It gives us a magnifying glass into the operators we are considering and the ones we have in terms of ensuring we are only working with top-notch business people who put shareholders first – and as important, don’t bring with them any negative history.

What are some of the unique aspects of operating in the US market and how do you make the most of them?

One big one is the opportunity today.  With Canada, everyone took at face value Prime Minister Trudeau’s promise of legalization by July, which will not happen.  It remains to be seen if it will even happen this year.

If you go south of the border, however, you’ve still got many federal catalysts to come.  I would argue that Canada has had its primary growth in the space already from 2013 through 2017 as far as investment is concerned.  Now it’s all about market share and who will ultimately shake out as the “Big 5” to serve a recreational market and a much less fragmented medical market.  It is much like when people buy a stock on the rumour and sell when the news comes out.  In Canada, I feel if cannabis were to become legal tomorrow a lot of people would sell on that catalyst and look for the next big thing.  That’s the nature of venture capital; it gets bored easily and needs new opportunities and to blaze new trails.

Just recently there was a conversation between President Trump and the Governor of Colorado, which sent US cannabis stocks higher.  There is so much to look forward to and I really see America today much like Canada was in 2013 in terms of the financial opportunity that exists right now.  It has years of accelerated growth ahead, and as people wonder if they have seen the peak, it just continues to get bigger, as it did in Canada for the last five years.

As far as operating in the US, I have enjoyed it and our partners municipally and locally are far better to deal with than Health Canada in every way.  There is much more of an entrepreneurial mindset in the US.  It’s just a lot more enjoyable of an environment, and people seem to be more accommodating to this business, be it construction companies or bankers, they all seem to be happier to have the business.  My experience in Canada was people were more hesitant and unsure of the muddy legal landscape.  In Nevada, it’s black and white.

Observers are aware of the conflicting positions of US state governments and the federal government.  How does that environment get reflected in your corporate strategy?

What if the United States suddenly voted on a rescheduling of cannabis this year or next?  Something to consider.  Big Pharma spends more money lobbying than any other industry in the US, by far.  Big Pharma has an interest in not missing the boat.

Just take Merck, Ely Lilly and Pfizer as examples.  Think of the money they are losing every day because this drug is Schedule 1 (no currently accepted medical use in treatment) and not Schedule 2 (has a currently accepted medical use).  There is going to be a major push from them and it is already happening behind the scenes.  I continue to be of the opinion that we may see more federal catalysts in the US before we do in Canada and for that reason as a company we are very much focused on Nevada and we are fairly confident in an overall softening on the Federal stance, allowing the sector to mature further.

So to answer your question, on a state versus federal level we very much enjoy where we are and are perfectly happy to paint within the lines of the state.  One thing I admire very much about the US is the Tenth Amendment and individual states’ rights, and with that we are very confident in our strategy that we will be able to take full advantage federally, once able to do so.

What is the difference between doing business in the various states?  Why would you choose one jurisdiction over another?

Nevada has been extraordinarily regulated for decades, and it has to be for things like gambling.  Compare Nevada to other states; Washington has thousands of cultivation licenses, as does California, as does Oregon, as does Colorado.  Nevada has less than 200.

Colorado legalized the plant in 2014 and the cartels involved in trafficking cannabis moved back into the state because there was an economic point at which they could still be in business.  So the state was forced to lower taxation by a couple of dollars per gram and immediately the economics shifted for organized crime and they left.

Nevada was forward-looking in saying they want to ensure illegal players are pushed out and that their new licensees are not going to be underwater in 12 months.  I would point to Canada again, where we have over $15 billion of market cap making up the public companies in the space, never mind the private ones, and they are fighting over a total market share of only about $200 million a year in business right now.  To me, that represents a bubble in the truest sense.  Yes, legalization will launch that number to more like $5 billion-plus, but legalization is not guaranteed.

Look at Nevada versus Canada, Canada probably has 50 times the square footage in terms of canopy space and it has perhaps a fifth of the user base.  It is just back of the napkin math.  If Canada flicked a switch tomorrow and said it was legal tomorrow, what are they going to do with the surplus product?  Export to Europe? In one or two years Germany, Australia and other countries will be caught up and won’t want or need imported weed.  Canada will not be important at that point from a global supply standpoint.

I still scratch my head and wonder why there are millions of square feet of canopy on the way for a country as small as ours.  Particularly when THC will more than likely eventually come from a petri dish, not a flower pot as the trend moves further and further from the combustion of flower to get THC in your body.

From an investor standpoint, anyone owning US assets in any form needs to have a far greater risk profile than one owning only assets in Canada.  The general consensus could be said that Canada is safer, but has far more downside than upside, whereas the US is far riskier, but brings much higher upside potential.

Tell us about the feedback you get from investors and financial professionals on the cannabis sector and Friday Night in particular.

Investors are always hungry for the next thing to get excited about – the next catalyst.  We have always been focused on revenue and profit.  We are currently at a run rate of well over $10 million a year, which I think is notable in less than 12 months of being in business.  Shareholders are very picky nowadays and they demand perfection, as they should.  But there is no such thing as a perfect company, so all we can do is our best.  And right now I would say we are extremely pleased at our progress to date as well as our trajectory and future prospects.

We are always looking to improve.  We are looking at vertical integration, and right now we are looking at owning a strong retail presence, so that is taking a lot of my time, to determine what the best course of action is regarding final sale of the product.  Once we are fully vertically integrated we can be exposed to that seed-to-sale margin that so many others enjoy.

There are certain things that are hard to invest in.  I am not going to spend CDN$25 million on 20,000 square feet which is the going rate on a Canadian ACMPR grow, when I could spend US$5 million and buy something that is already doing a million dollars a month in sales.

On the banking side and institutional side, they are more pragmatic and see things on a numbers basis.  What is our maximum funded capacity, what is the maximum money we can make relative to our current market cap if everything goes as planned, and where would we be in the worst-case scenario?  Shareholders tend to be younger, more astute and better educated, but since there is so much misinformation out there, they are looking at it as more of a land grab, which is not the way to look at it.  You want to consider if a company is sustainable and profitable many years out, and what they are spending today to get there.

We are generating a million a month and moving towards profitability.  All we can do is block out the noise, build value and continue to do what we’re doing.  I see a lot of companies buying smaller companies for the sake of owning more companies, mostly due to investors and I think that’s a dangerous strategy long-term.

Any other thoughts you want to leave us with?

I have been an investor for 14 years.  When you hold a stock, if you hold XYZ company, you should ask yourself every night when you go to bed if the state or country I am in goes legal, how will I do?  If it does not go legal, how will I do?  If there is an influx of competitors, how will I do?  If key management leaves, how will I do?  Just make sure you check all those boxes.  If 30 months from now nobody is buying flower, will this company survive?  When Merck and Eli Lilly and Pfizer step into the scene, they could literally make this plant obsolete within decades.  What I mean by that is that a tiny fraction of the world rolls cannabis and smokes it.  But, for example, if and when a 50mg THC/CBD capsule is made for 10 cents in a lab and sold for $5, good luck to the company growing $2 grams and selling it at $6.

So, just make sure that whatever stock you hold does not have any one lynchpin.  Know what will happen to that share price in any environment.  If someone came along who was stronger and better than me, I would be gone in a heartbeat.  I am not a lynchpin for this company.  If I ceased to exist tomorrow, the company would still flourish.  Those are the type of companies you want to own.

This story was featured in The Public Entrepreneur magazine.

Learn more about Friday Night Inc. at http://fridaynightinc.com/ and on the CSE website at http://thecse.com/en/listings/diversified-industries/friday-night-inc.

CSE Issuer Stories, Magazine

Sunniva: Groundwork laid for cannabis production “at Scale” in Canada and the US

Sunniva Inc. (CSE:SNN) Chairman and Chief Executive Officer Dr. Anthony Holler remembers well a lesson from his success building ID Biomedical, a vaccine manufacturer acquired by British pharmaceutical giant GlaxoSmithKline: produce at low cost, at a high level of quality, and at scale.

These guidelines play an important role at Sunniva, which is moving quickly to initiate production of cannabis at facilities in both Canada and the United States.  Dr. Holler offered insight on the company’s marketing and risk management strategies in a recent telephone discussion with Public Entrepreneur.

Sunniva is progressing toward large-scale cannabis cultivation in both the United States and Canada.  Let’s start by reviewing your basic business approach.

Sunniva is focused on the two largest cannabis markets in the world – Canada and California.  Our concept involves large-scale, high-technology facilities in a greenhouse format.  That means we can be a low-cost producer, also producing at the highest quality and at scale.

Our facilities, when fully completed and operational, will produce about 100,000kg of dried cannabis per year in each location.

Pre-selling a significant portion of our production is also an important pillar of the business plan.  We have announced that in Canada we have pre-sold 90,000kg of dry cannabis to Canopy Growth.  The idea is to de-risk our business model.

In Canada, we also plan to grow the Sunniva brand through our specialty cannabis clinics, where we have about 95,000 patients registered with Health Canada.  And as that number builds we expect that some of those patients will be taking a Sunniva-branded product.  We are primarily focused on the medicinal market.

Importantly, our facilities meet GMP (Good Manufacturing Practice) standards, so we will be producing pharmaceutical-grade products.

Can you give us timelines to production on each side of the border?

We’ll start commercial production in California probably in the third quarter of 2018, which means we have the potential to harvest our first crop by year-end.  After that we scale up the facility over a period of about eight or nine months.  By the end of 2019, we should be in full production on our initial Phase 1 in California, that will produce about 60,000kg.  And I’d see us starting on Phase 2 almost immediately after Phase 1 is completed.

In Canada, we are just breaking ground right now, and construction is expected to take eight months.  At the earliest, production will start in the first quarter of 2019.  And similarly, it would take eight or nine months to get to full scale.  My estimate is that Canada reaches full production in 2020.

Take us back to your initial decision to produce in the United States and how you first recognized the opportunity.  What has been required to develop the business to its current status?

In California we saw a very large opportunity and we travelled throughout the state looking at lots of facilities.  Our conclusion was that California was about five years behind Canada.  It is a very fragmented industry with many small growers, lots of dispensaries, and, at that time, no regulation.

We realized that regulation would be coming, both legalization for adult use as well as medicinal cannabis.

This meant a couple of things.  The first is that quality of product would become important, and the second was that there would be a scarcity of safe products that would meet California laws once they were enacted.  That is why we decided to build this 500,000 square foot high-technology facility for growing cannabis.

Things have been moving along quite quickly.  We now have all of our temporary licenses in California that allow us to be compliant with California law.  And recently you saw that the Trump administration is basically saying that they will let the states regulate their use of cannabis and the federal government will not interfere with that as long as they are not breaking federal laws through such activities as exporting across state lines.

Looking ahead we are preparing for what is called annual licensing.  At the end of the day you need annual licensing to be compliant in California.  The state decided it would be a two-step process.  It would start with temporary licensing so they could get compliant production and sales going.  A lot of people have not done that, so they are going to be offside with California laws.

You are going big into production in both the US and Canada, and the countries have two very different operating environments.  Can you give us some insight into those differences?

In the US, everything has to be done within the state – you cannot ship product out of state, you cannot export it to other countries.  You have to grow and sell everything right in California, in our case, and the other states are like that as well.

In Canada, you can ship your product across the country, and if it is GMP-compliant you can ship it to the European Union.  The other difference is that in Canada there is clear delineation between medical use and adult use.  Licensed producers can deal directly with medical patients, whereas adult-use will go through provincial authorities and they will regulate provincially.

Can you walk us through the business components generating your revenue right now?

Currently, our revenue comes from two areas.  One is our device company, FSD.  They produce vaporizers and cartridges.  Smoking of cannabis is becoming less common and use of vaporizers and other devices is becoming more common.  And our entry into this business was strategic, as we saw it being more valuable once we are producing cannabis ourselves.

The business currently sells empty devices to a variety of brands across the US.  It is a relatively low-margin business, but it is profitable and brings us significant revenue.

The real opportunity for us is that once we are producing our own oils and other products, we can go to the customer and offer not only to sell the cartridge and pens, but a loaded cartridge with the component of oil you want.  If someone wants a high-THC oil we can do that, or if they want pure-CBD oil we can do that.  The high value part of the business is filling the device, packaging it and then giving it to the brand.

That was our strategy right from the start.  What’s happening in California is that a lot of the brands just want to be marketers and sellers, but they need a reliable source of flower, oils and devices.  We fit that niche for them.

The other component of our cash flows are natural health services, which have seven clinics across Canada.  We have doctors, nurses and highly educated helpers who take care of patients when they come to our clinics.  The doctor will make recommendations, we educate the patient, and then we connect with a licensed producer from which they can buy their cannabis.

The business generates healthy revenue already, and we generate revenue through licensed producers – we have 25 signed up to our software package.  We get paid based on their use of the software.  It allows the doctor and our clinic to communicate directly to the producer, so patients can literally get their delivery a day later.  It automates the whole ordering system.

And when we are in production, some of those patients will be using Sunniva-branded products.

Let’s look at the financial market side of things.  How are investors and financial professionals reacting to your story?

What we hear from analysts is they like the approach of de-risking the business by forward-selling the product.  The question in investors’ eyes is that it is great companies can produce cannabis and dry product and oil, but can they sell it?  Where is the market going in terms of pricing?

Our view is that if we can lock in some pricing on the sale of a majority of our production, it safeguards the whole business strategy.

The fact we are selling pharmaceutical-grade product also means we can sell it in Canada, or we can sell it internationally.  And the fact that we are a grower at scale of high-quality cannabis, that’s what people like.

Can you tell us what your competitive advantages are beyond the strategy you have laid out so far?

Sophisticated management.  My background is from the pharmaceutical industry.  I was a founder of a company called ID Biomedical and that was purchased by Glaxo Smith Kline for a total of about $2 billion.

We built one of the largest flu vaccine manufacturing facilities in Quebec City.  We produced at low cost, high quality and at scale.  We could then go to the big distributors and ask them how much they wanted.  We pre-sold about 40 million doses in the US and supplied about 75% of the Canadian marketplace.

We have those types of people in our company who went through that.  Similarly, our CFO was the finance person for Lululemon as it went from $150 million in sales to $1.5 billion in sales and became a $12 billion market cap company.

One of our big advantages is that people look at our team and see that we have executed on a number of very significant companies, and expect that we should be able to do it again.

Are there any closing thoughts you would like to offer?

We have been judicious with raising capital.  We have been able to finance our facility in California through a large developer out of Los Angeles, Barker Pacific Group.  And that has enabled us to not have to raise that $50 million to build that facility.

Fully diluted we only have about 40 million shares outstanding, and I think our shareholders appreciate that we are very careful about issuing shares.  At some point we will issue more, but we are going to be careful because we don’t want to dilute our shareholders.

I also believe our shareholders appreciate that management and board members are significant owners in the company, too.  Shareholders see that we are invested and that we need to make this a success for ourselves as well, and then we can all succeed together.

This story was featured in The Public Entrepreneur magazine.

Learn more about International Sunniva Inc. at https://www.sunniva.com/ and on the CSE website at http://thecse.com/en/listings/life-sciences/sunniva-inc.

 

CSE Issuer Stories, Magazine

Phivida Holdings: Outstanding team with a vision for international CBD leadership

It was insights earned from years of hard work and dedication that led Phivida’s senior management team to choose a greater vision.

Founded in 2014, Phivida has shifted its focus from a pure-play wholesaler of CBD (cannabidiol) hemp-oil extracts into a premium portfolio of CBD-infused clinical and consumer brands, offered in a variety of formats, and formulated to serve the needs of patients, practitioners, professional athletes, and active professionals.

President and Executive Chairman of Phivida Holdings Inc. (CSE: VIDA) John Belfontaine has moved as fast as anyone to take advantage of the growing interest in all things hemp/cannabis, as legalization efforts – and greater acceptance of the plant’s medicinal properties – continue to progress in North America, and around the globe.

Belfontaine, working with key advisors, first saw the opportunity, brought it to the capital markets and quickly found himself fully capitalized, with an all-star line up of experienced executives.

Fast-forward to Q2 2018 and the company has a flush treasury and a newly evolved senior management team with proven success in taking products through regulatory labyrinths – plus a vision to build a CBD brand which appears destined for success.

The Phivida executive team now includes Chief Executive Officer Jim Bailey who, with his team, built the energy drink category in Canada from scratch, taking Red Bull Canada to over $150 million in annual sales. Energy drinks such as Red Bull were not even approved for sale in Canada when Bailey agreed to head the Canadian operations of what is now a household name.  There are clear parallels to his success in that role with the quickly evolving regulatory environment within the global CBD hemp and cannabis industry.

Bailey is new to the team, having joined Phivida in mid-March, following the appointment of Michael Cornwell as Chief Marketing Officer.  Cornwell’s vast experience in brand marketing and sales for top CPG (Consumer Packaged Goods) companies includes his former role as Business Unit Director for Red Bull.

The most recent addition to the executive team is another top Red Bull alumni, former Red Bull USA Director of Sales Doug Campbell. Campbell joined the team in early May in the role of Chief Commercial Officer, now overseeing international distribution and sales.

Clearly, Bailey and his new teammates qualify as star power for a company of virtually any size but for one at Phivida’s growth stage their leadership is truly remarkable.  Their decision to join was based on a clear potential to grow the company into a leading brand in a product category in which they all share a common passion: functional foods, beverages and natural health products infused with CBD from medicinal hemp.

The Phivida product line currently encompasses CBD capsules and tinctures both for consumer and clinical markets, as well an appealing selection of CBD-infused beverage innovations. Phivida’s CBD beverages use encapsulation technologies which make the CBD oils faster acting, longer lasting, and soluble in a fluid format. Perfect for CBD beverages, higher than average consumption rates, and a USA health and wellness market that tends to place a premium on price and convenience.

The company is continuing to innovate on new CBD-infused beverage brands and formulations, and the finer details of its marketing strategy, ahead of a USA roll out.

As a first order from the new chief executive, the creative vision for the future of the brand is now led by award-winning creative agency Sid Lee. This is the same creative agency that assisted Red Bull’s launch in Canada, as well as other notable names in their portfolio, such as North Face and Grey Goose. Phivida has also engaged world-renowned brand designer Brian Schmitt to act as a creative director in the evolution of the brand, with a portfolio of work that includes global brand juggernauts like Nike and Apple.

“The consumer beverage side of the business is what we are really going to focus on,” says Bailey.  “We are going to start with a launch in the United States in four major metropolitan areas: Seattle, Portland, San Francisco and San Diego.  We’ll begin with a targeted approach and then look to broaden distribution nationally.”

Bailey came to believe in the potential of cannabinoid-infused products during his recovery from a cycling accident several years ago.  The hospital that performed his surgery had him on opiates while under its care, but even before being discharged he was looking for natural alternatives.

“I did a lot of research on cannabinoids and their potential for helping with pain management,” Bailey explains. “Knowing Phivida was in the CBD-hemp space really intrigued me.  In food and beverage, distribution and retail are both looking for natural alternatives right now.  People are more aware of what they are putting in their bodies and are seeking healthier choices, so for me this sector is ripe for growth.  I know we have the potential to equal the success we had with Red Bull.”

Both Belfontaine and Campbell share similar stories, and one that many relate to.

Bailey says the only way to beat competitors in the current environment is to “out-market them and out-professionalize them.” He explains regional distributors are forced to operate in somewhat of a wild west environment for the time being, often turning to manufacturers making small batches and selling product on the fly.

“They see that we are very different, the investment we are making in the consumer, and the investment we are making on the creative side,” notes Bailey.  “And working with top quality ingredient suppliers that bring authenticity for each product is important.  Everything we use is premium quality, professionally manufactured, and thoroughly tested for purity, safety and function, putting Phivida in a class above.”

Ensuring reliable supply of high-quality ingredients and at the same time opening a new potential market in Canada is par for the course for Phivida. However, the company’s biggest move to date is one the capital markets have, arguably, yet to fully appreciate.

Phivida’s prospective foray into the Canadian cannabis market is through a joint venture agreement with licensed cannabis producer WeedMD (TSXV:WMD) in what would be a co-owned company called Cannabis Beverages Inc., or “CanBev”.

WeedMD is fast becoming a major cannabis producer under Canada’s ACMPR (Access to Cannabis for Medical Purposes Regulations), with a 26,000 sq. ft. facility operating with annual production capacity of 1,500 kg of high-quality cannabis.

Their second facility has an estimated 33,000 kg of capacity with an option that could take it over 50,000 kg. This 14 acre (609,000 sq. ft.) expansion project in Strathroy Ontario boasts world class genetics, top-tier management and the infrastructure to support large-scale growth, with a low cost of production, by using state-of-the-art greenhouse technologies, yet maintaining premium quality production standards.

WeedMD also recently announced a merger agreement with Hiku Brands (CSE:HIKU) which may add recreational THC brands to the CanBev project, as well as west coast licensed production with their ownership of DOJA, and a national network of retail locations for cannabinoid infused products through their ownership in Tokyo Smoke.

“Our joint venture with WeedMD is designed to build and operate the first ever federally legal cannabis-infused beverage production facility in Canada,” explains Belfontaine.

The CanBev joint venture also enables Phivida to bring their products home to Canada by navigating an important aspect of the Canadian regulatory environment.

“Industrial hemp is not an option for us in Canada,” explains Belfontaine in discussing legal sources for the oil Phivida needs to make its products.  “The WeedMD partnership provides sufficient supply of high-grade CBD from a legal source. We are partnering with an ACMPR licensed producer to source cannabidiol in Canada, and we are thrilled to joint venture with what we consider to be the ideal partner in the Canadian market.

In the US, Phivida products use full spectrum hemp oil extract, with 0% THC, “for all of the health and none of the high,” Belfontaine says. To date, Phivida has focused on the medicinal CBD market and the Phivida brand in Canada will remain true to this ethos.

As a complementary partnership, the WeedMD-Hiku collaboration also opens a whole new market to the CanBev project in the adult-use recreational side of the sector.

“Phivida will maintain CBD-only, THC-free products under our brand labels,” says Belfontaine.  “But with a Red Bull pedigree at the helm, and a solid operations team, we will also be assisting in the manufacturing, marketing and retail distribution of THC products with WeedMD/Hiku under their premium adult-use brands, and labels.”

Looking to ensure every possible base is covered, Phivida has its eye on a launch across North America, while preparing for expansion to new and emerging markets overseas.

“We have secured distribution partnerships across the western United States, as well as in Japan through Asayake,” says Belfontaine, adding that a deal with Namaste Technologies provides exposure to UK, German and Australian markets via online sales.

Phivida has completed two major financings in the past five months, including its long form prospectus IPO in December 2017.  The appreciation in share price out of the gate resulted in the company having almost $7 million worth of warrants exercised. In April, they completed another prospectus offering in bought deal which grossed $8 million.

“As of May, Phivida has just over 60 million shares outstanding with over $16 million in the treasury,” points out Belfontaine. “We now have expert management, a solid structure, tier-one supply and manufacturing partners, and the capital we need to execute our plan. There is now very little standing in the way of the Phivida brand becoming synonymous with leadership in the CBD sector internationally.”

CSE Issuer Stories, Magazine

Women in weed: meet four women helping to shape Canada’s cannabis industry

It’s a common story thread: women entrepreneurs blazing the way for cannabis, taking over the sector and inserting themselves into a market that is booming, complicated and fast-evolving.

Stop. Back it up. Wait a moment. This is not one of those stories.

It’s an easy – perhaps a bit lazy – trend to latch onto, one that weaves itself through the cannabis daily news cycle. “Women in weed: charting change for male-dominated cannabis culture,” blared a CBC headline earlier this year.

This is not to say that women aren’t powerhouses in the world of cannabis. They are: just like they are in each and every other sector, when put in positions of power to do so.

In order to survive in this sector, you have to have strong chops, a killer resolve and the tenacity to do whatever it takes. It’s that entrepreneurial spirit that is key. Being a woman just happens to be one part of the equation.

Proactive Investors spoke to four women who touch different corners of the cannabis industry. From financiers to investment bankers, from equipment manufacturing to recreational advocates, we chatted about their past, predictions and what might roll out ahead.

Interviewees:

Meris Kott – CEO at Redfund Capital Corp. 

Redfund Capital (RFND:future symbol) is a cannabis merchant bank that provides an alternative source of capital through a debt facility to bridge finance and helps revenue producing cannabis related companies build their valuation, and grow their company without diluting their equity prematurely, while helping move them toward being publicly listed.

Yasmin Gordon – Senior Investment Advisor at Canaccord Genuity

Yasmin Gordon is co-founder of the Gordon Group, as part of Canaccord Genuity Wealth Management, and advises private clients, corporate entities and institutional investors.

Rosy Mondin – CEO at Quadron Cannatech Corporation (CSE:QCC)

Quadron Cannatech (QCC) is a market and technology leader in end-to-end automated processing and extraction laboratory solutions for the international cannabis industry. QCC also provides a range of innovative value added services including custom ancillary products and cannabis accessories.

Ria Kitsch – VP Human Resources at Hiku Brands Company Ltd. (CSE:HIKU)

Hiku is a cannabis house brand. Hiku’s subsidiaries include Tokyo Smoke, DOJA, Van der Pop and Maïtri.

Q: Tell me about how you got into this industry. What led you here?

MK: I come from an investment banking family, which funded emerging market growth companies. About 12 years ago, we started looking at the cannabis industry, and we didn’t touch it, figured it wasn’t ever going to happen. We got into the industry in 2012, after Amendment 64 passed in Colorado. We’re now launching the first debt facility merchant bank, Redfund Capital Corp., focused on funding cannabis related revenue producing companies.

YG: I am a Senior Investment Advisor with Canaccord Financial, specializing in non-traditional wealth management strategies with a niche in providing financing opportunities. I came into the cannabis sector, quite honestly, out of necessity – I could see there was a shift occurring as we got more clarity with regard to full out legalization in Canada. I saw the opportunity and decided to add exposure in a more significant way. It’s been an exciting ride.

RM: As CEO of Quadron Cannatech, and a leading advocate for the legalization of recreational cannabis in Canada, I’m thrilled to be at the forefront of this emerging industry. I’m the director for the Cannabis Trade Alliance of Canada (CTAC) and I also serve as a Special Advisor to the Canadian Association of Medical Cannabis Dispensaries (CAMCD). In my role with CTAC, I work with industry leaders, government legislators and educators to develop an inclusive, safe, and ethical cannabis industry.

RK: I’m the vice president of HR at Hiku. Back in 2013, we saw an opportunity in getting into commercial cultivation, so we put in our application. We received our license to sell just this year. It’s been a long road but here we are. We merged with Tokyo Smoke in January. We then just recently merged with WeedMD in a pretty transformational transaction: combining a premium cannabis brand house and retail-focused operator.

Q: For some women, this might not be a sector that immediately comes to mind as a place to be. What advice would you give others who may not have considered this sector as a career path?

MK: Jump in! Because right now we’re creating a whole new industry. That said, it has changed and it’s become harder to break into the industry as a woman because it’s becoming more mainstream. Women are generally the chief medical officer in their family and looking at cannabis products more closely. I also think because it’s such a new industry people don’t consider it as a career path and it is still a risky avenue for work to some women.

RM: We are building a new industry – we currently have just over 100 Licensed Producers across Canada. If you think about most industries, 104 commercial licensees nationally in the sector is not a true industry. We are slowly seeing more ancillary businesses coming into the fold: legal, accounting, marketing, government relations, business development, branding, packaging – and banking (slowly). In addition, the cannabis industry has been operating in an under-regulated space (as there was no other option). Now there’s a lot of opportunity during this transition into the regulated market. There’s just so many areas that you can jump into as we build a whole industry so it’s really up to your own imagination as to which way you want to go and how to get your feet wet.

Q: What trends do you expect to see when recreational comes online later this year?

RM: I think the biggest shift will be the consumption of cannabis moving away from smoking traditional flower to products that are extract-based. Extracts form the basis for the majority of cannabis products outside of smoking: vapor-oils, capsules, tinctures, sublinguals, transdermal patches, edibles, topicals, suppositories, infused beverages. I have no doubt that we’ll see different consumption methods and further product innovation. I think the sky’s the limit.

MK: I’m going to wear my American hat here. I think we’re going to see a huge influx of American companies that have already been working with Canadian companies on many of their products, move more into the market. I think the Americans are going to flood our market with new brands, technologies and licensing agreements, as well as other countries who have approved recreational cannabis already. It can only help create a successful global marketplace.

YG: I see a shifting consciousness as to what legalization means for cannabis as many people will be forced to redefine what they know about the potential benefits of cannabis as a therapy option.  You know I find it very interesting with my clients. There’s a divide in my book of clients: there are those that are for investment and those that still believe it’s a gateway drug. I believe perceptions will swing more positively as the public receives further education about the medicinal benefits of cannabis.

RK: It’s interesting when we talk about recreational. It’s a national movement that’s going to have so many ripples of effect. I’ve always believed that vaping and very clean, efficient methods are going to be preferred. However, we also believe that there’s a segment of the market, maybe 10% or so, that wants a curated strain and they want it in its entirety. It’s similar to going to a winery. You want to talk to a winemaker about how it’s grown, what it looks like, feels, tastes, etc.

Q: We’re seeing a lot more mergers and consolidations in the space. How do you differentiate yourself in a crowded market?

MK: In Canada, the companies are much smaller than other global players, although they are financed with plenty of capital. That said, you will see more consolidation between U.S. and Canadian companies. It is going to be about a recognized branded product first off.

RM: Like any industry, we’ll see consolidation, mergers, acquisitions and we’re going to see some businesses that will not make it – it’s the nature of any business. Look at the restaurant industry. It’s one thing to have a good idea: it’s another thing to actually execute it, using the restaurant example, understanding how to run a kitchen, avoid food-waste, or manage front-of-the-house. There will be consolidation, as licenses get scooped up through mergers. It’s just the normal course of a new and growing industry which continues to shift and evolve.

RK: There’s room for a range of different products in the competitive landscape. At the end of it, it’ll be key to have a really quality product, and maybe do fewer things but do them really well.

Q: If there’s one lesson you’ve learned in the industry, that you think other women should know, what would it be?

YG: Being aware of trends as an investor in the industry. It’s shifting so quickly. It’s almost mind-blowing. Retail investors need to be aware of how quickly the industry is transforming and the trends that are coming out that make a buy and hold strategy not likely the most effective way to play this market given the volatility we are witnessing.

RM: This is a 21st-century industry and women can play a leadership role from day one. For example, as a business leader in a new industry, I don’t think sitting back and just accepting the regulations at the government tables is acceptable. We’re getting out there and helping define the rules as the country moves forward. I think this kind of thing is really important. How do we encourage business investment and faith into the industry? I think having strong leadership, especially more women, can help.

MK: When I started in the industry it was two camps: medical marijuana and marijuana. Then we started talking about cannabis. It’s an industry now, a true marketplace. I think that from an entrepreneur’s point of view it’s become a cannabis investing haven. Just the fact that there are so many people involved, and that you can go on the CSE website and find a company directory in cannabis is exciting. There’s a mining sector, and now there’s a focused cannabis sector. Welcome to the industry.  It’s not going anywhere.

RK: Don’t be afraid to be visionary.  The industry is moving so quickly. Look to something you think you understand or that you can replicate with confidence. Another country, another model, don’t be afraid to try unique things. Don’t feel that you have to do what everyone else is already doing. The future is ours to create.

Magazine

Public Entrepreneur Magazine – Cannabis Industry Issue – Now Live

With legalization of marijuana a hot topic heading into the summer of 2018, the newest issue of the CSE’s flagship publication, Public Entrepreneur, focuses on the highly dynamic cannabis industry.

This edition of the magazine features interviews with a diverse range of cannabis entrepreneurs, a reflection of just how far the industry has come in the span of about five years. From stories about firms cultivating cannabis to the variety of delivery systems to the expansion into consumer products such as beverages and more, this issue provides interesting perspectives on the cannabis industry from the folks working to bring ideas to market.

CSE-listed firms featured in this edition of the magazine include:

In addition, this issue also features an in-depth interview with four women cannabis influencers who share their perspectives about being a woman in this fast-moving space and where they see opportunities to change perspectives, both about marijuana as well as what defines an entrepreneur and business leader in the cannabis industry.

Click below to view the latest issue.