Top players in space give verdicts on what lies ahead with recreational market looming
The grow game is over and companies without a cost-structure plan in place are already dead.
That was the stark warning to cannabis competitors from Brad Rogers, president and COO of CannTrust Holdings Inc, speaking at the Echelon Entrepreneur Summit in Toronto yesterday.
Rogers said CannTrust, a well-established medicinal player, wants out of the grow game and does not plan to invest much more in infrastructure either as it focuses on being a producer and supplier. He said investors tempted by a new grow-up should look the other way.
Rogers said he is less interested in where the weed comes from compared to how cost-effective its supply channels are.
He said: “Cost structure is everything right now. Some of the LPs are $2, $3 – how can you compete when I’m growing it for 75 cents, soon to be 50 cents a gram. I don’t think you can stand the test of time – I think you’re dead.
“I think also when globalisation comes to fruition you’re growing it for 10 cents a gram, 5 cents a gram in some places.”
Rogers added that the fact CannTrust's production is 70% oil has given them an opportunity in the market going forward.
He said: “It doesn’t matter what the orange looks like before it becomes orange juice. I don’t know what my orange looked like before it went into Tropicana but I know the pretty picture on the front says it’s beautiful.
“Where it comes from I don’t know and don’t care, and so at the end of the day, that’s what’s going to play out. Cost structure is going to be key, your ability to supply these channels is going to be key, so if you don’t have that in place, you’re done.”
Jennifer Smith, manager of financial reporting and investor relations at Hydropothecary Corp, told the audience that ongoing talks with Big Pharma, Big Tobacco and Big Alcohol mean they are poised to diversify to mitigate any losses incurred from the recreational market.
She said: “You have a lot that are talking right now, not necessarily about the timeline of when rec comes in but making sure that when they make these moves they make them towards the right strategic partnership.
“Big Pharma, tobacco, alcohol are all aware of the fact they need to diversify. I can’t think of a time in recent history when we have had a product that is coming to market that not only has medicinal properties but is an experience-enhancer and can also be used in food-based products. And we have only recently begun to look at the research in usage for this.
“It's just a matter of time and then we’ll start to see the deals come out really quickly on that front.”
Greg Engel, CEO and director of Organigram Holdings Inc, believes that once the rec market becomes a reality, there will be a shake-up as companies fall short of targets.
He said: “I know all the companies are building out their infantry in anticipation of that launch. So are you delivering? Are you hitting your projected targets, not only in market share but also the product line and product mix?
“I think we are going to potentially see a reset and revaluation of companies once first sales and first reports come in, and I think that’s going to shake up the market place because there are a lot of companies making grand promises of where they are going, what their size is and what their production is.
“I know what we are doing, we’re delivering, we’re overachieving; we actually expect to have our phase three licence this week and it’ll be 36,000 kilos a year. That would actually make our licence production larger than Aphria’s today and their market cap is four time ours. That’s not commenting on their execution, just saying from a relative market perspective.”
