Canada’s Cannabis Sector Succumbs to California’s Surging Market, Built on Edibles Advantage

February 04, 2019 - By: Baystreet Staff

Marijuana edibles were expected to be legalized in Canada within a year of recreational cannabis’ October 2018 kickoff. However, actual sales of edibles are now expected to be delayed in Canada, giving way for California’s surging edibles market to widen the state’s advantage over the country to the north. Despite Canada’s delays, several companies are moving forward with new edible products including Plus Products Inc. (OTC:PLPRF) (CSE: PLUS), Canopy Growth Corporation (NYSE: CGC) (TSX: WEED), MariMed Inc. (OTC: MRMD), The Green Organic Dutchman Holdings Ltd. (TSX: TGOD) (OTC: TGODF), and Tilray, Inc. (NASDAQ: TLRY).

Leading the way in California’s blossoming cannabis market, is Plus Products Inc. (OTC:PLPRF) (CSE: PLUS), which is now dominating with 3 of the Top 5 cannabis products in Q4—and 4 of the top 10. According to BDS Analytics, during Q4, PLUS also had 3 of the best-selling branded products in all product categories including flower, vaporizers, edibles and topicals. PLUS “Uplift” and PLUS “Restore” remained the #1 and #2 best-selling SKUs. PLUS “CBD Relief” was the #5 best-selling SKU, and the top CBD-only SKU according to BDS analytics.

All three of these products are “gummies”, which at 30% is the largest edible segment by market share. However, the second largest edibles segment is baked goods. In December, Plus Products Inc. (OTC:PLPRF) (CSE: PLUS) acquired California-based cannabis-infused baked goods brand GOOD CO-OP, INC., whose first product, the GOOD brownie, is a modern twist on the classic pot brownie made with high-quality ingredients and uniform product consistency.

BDS Analytics holds the potential for cannabis-infused edible products in very high regard. In a recent report, the research firm projected sales in the edibles market to surpass $4.1 billion by 2022. Cowen Research asserts that the US cannabis market as a whole is expected to be $75 billion by 2030.

“Our objective at PLUS is to build the world’s strongest cannabis brand. When we became the top edibles brand in the largest cannabis market (California) in the third quarter of 2018, our team felt that it was only one more step in a much larger journey,” said Jake Heimark, CEO of Plus Products Inc. “We are proud that we have not only maintained, but continued to grow our position as the market leader in Q4. We hope to continue this momentum into 2019 not only in California, but in other jurisdictions as well.”

Unfortunately for Canadians, they may have to wait longer for entries such as Plus Products Inc. (OTC:PLSPF) (CSE: PLUS) to hit their shelves. While edibles in Canada don’t require a new law to be passed, the government needs to publish final regulations. Prime Minister Justin Trudeau’s pot czar Bill Blair is hoping to complete that by the Oct. 17th target, however there could be a delay of weeks, even months—giving California a longer sales advantage in comparison.

California: Land of Product Innovation

At this stage of legalization, California is surging way ahead of the pack as the largest and most important cannabis market in the world, including Canada. In comparison, the entire country of Canada is only expected to yield $2.7 billion in 2019 legal sales.

Since adult-use legalization in California began in January 2018, its edibles market is trending upwards much like it did in longer established legal markets such as Colorado and Oregon. Over the course of its long history since legalizing medical marijuana, California has grown its product selection to more than 250 brands of edibles.

As edibles have positively trended in California, so has the trajectory of Plus Products Inc. (OTC:PLPRF) (CSE: PLUS)—a premiere edibles manufacturer, known for its cannabis gummies. In Q2 2017, PLUS was ranked #43 in California, with less than 0.5% market share of the edible cannabis product market. Flash forward less than 2 years, and the company now has 3 of the best-selling branded products in all product categories, including flower, vaporizers, edibles and topicals.

Between Q2 17 and Q3 18, Plus Products Inc. (OTC:PLPRF) (CSE: PLUS) increased its market share 24x, and grew to dominate 9.89% of the crucial California market. The company has grown its revenue to a $10 million run rate, with growth coming every month—and now it’s expanding its operations into more states. By introducing a CBD-only gummie, Plus Products Inc. (OTC:PLPRF) (CSE: PLUS) has plans to release an offering nation wide.

“We are grateful to the California consumers who have made PLUS the leading cannabis product in California, the largest and most competitive cannabis market in the world,” said CEO, Jake Heimark. “This has been a big year for Plus Products as we expand our portfolio and look to broaden our geographic reach and we remain committed to offering our customers products they can trust that provide consistent experiences in delicious formats.”

A Lesson in Organic Growth

Since its launch, Plus Products Inc. (OTC:PLPRF) (CSE: PLUS) has grown its presence in California from #43 to #1 in near-record timing. The company has done this without a major marketing campaign, nearly all organically.

All products under the PLUS brand are made with high-quality ingredients and produced in the Company’s dedicated 12,000-foot, food-safe cannabis manufacturing facility in Adelanto, California, staffed with chemists and food scientists. The company now sells to over 200 licensed dispensaries and delivery service customers, through a distribution partner.

Behind the company has been the very capable minds at Tiger Global Management—a hedge fund known for turning small companies in rapidly growing industries into multi-billion-dollar businesses. One recent example of Tiger’s success, was the build out of an e-cigarette product known as JUUL. In 40 months since Tiger’s involvement of the story, JUUL was grown to the point where tobacco giant Altria paid $12.8 billion for a 35% interest in the company—giving JUUL a $38 billion value. This is one of many Tiger successes that could possibly be replicated through the PLUS brand story.

The PLUS brand is currently made out of its current 12,000 sf manufacturing facility in Adelanto, CA, which has an annual production capacity of $50 million. The next order of business will be to significantly expand its food manufacturing square footage and overall revenue potential. The upgrades, along with increased market recognition should give PLUS brands a distinct advantage moving forward.

Further Edibles Market Developments

Canopy Growth Inc. (TSX: WEED) (NYSE: CGC)

Canopy Growth set the cannabis sector on fire after signing a strategic partnership deal with leading liquor branding company Constellation Brands. Together, the goal was to develop packaged goods, specifically in edibles and beverages. The partnership expects to remain a world-leading brand, through offering several products from foods, drinks, to even pet products.

MariMed Inc. (OTC: MRMD)

MariMed’s specialty is in designing, building and leasing medical cannabis production facilities to its clients. The company consults these clients, assisting them as they expand their businesses and obtain necessary licensing. In-house, MariMed also distributes its own cannabis products, including Kalm Fusion and Betty's Eddies. Its subsidiary iRollie also provides custom product and packaging for companies in the cannabis industry.

The Green Organic Dutchman Holdings Ltd. (TSX: TGOD) (OTC: TGODF)

In late January, The Green Organic Dutchman Holdings reiterated its commitment to the edible cannabis, extracts and topicals market, citing Deloitte’s survey noting that 60% of Canadians plan to purchase cannabis edibles. On its previously announced 287,245 sq ft purpose-built Valleyfield facility TGOD will be capable of producing 40,000 kgs of premium organic cannabis, to be dedicated to its Beverage Division.

Tilray, Inc. (NASDAQ: TLRY)

In mid-January, licensed producer Tilray Inc. signed a deal with Authentic Brands Group (the US company behind brands such as Juicy Couture, Aeropostale and Nine West) to develop and sell co-branded consumer cannabis products globally, with items expected to hit U.S. and Canadian shelves within the next year. Tilray is initially paying US$100 million in cash and stock, or up to $250 million depending on certain milestones. In exchange, Tilray received 49% of the net revenue from these products bearing names from ABG’s portfolio of more than 50 brands, with a minimum guaranteed payment of up to US$10 million annually for 10 years.

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