Cannara Biotech Inc. (TSXV: LOVE) is a vertically integrated producer of premium‐grade cannabis and cannabis‐derivative products for the Quebec and Canadian markets
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00:00 (upbeat music)
00:02 - One thing that we love to do here at Benzigna
00:04 is to talk to executives from publicly traded companies,
00:06 especially in this industry.
00:08 Today, we've got a great interview with Nick Soziak,
00:10 who is the CFO of Canara Biotech.
00:13 Ticker on the TSXV market is L-O-V-E.V.
00:17 Ticker on the OTCQB market is L-O-V-F-F.
00:20 And the ticker on the Fankfurt Stock Exchange is 8C-B.
00:23 Nick, thank you so much for joining me.
00:25 - Thank you for having me.
00:26 - Absolutely.
00:27 Look, like I mentioned, man,
00:28 there's a lot of people focused in this industry,
00:30 so there's a lot for us to get into
00:31 and look under the hood.
00:32 But before we do all that, explain it to me,
00:34 like on five, what is it that your company does?
00:36 - Absolutely.
00:37 We're Canara Biotech.
00:38 We're a Quebec-based, vertically integrated,
00:40 licensed producer of premium grade cannabis
00:42 and derivative products for the Canadian cannabis market.
00:46 We have actually two owned mega facilities,
00:49 which span over 1.6 million square feet,
00:53 focused on cultivation and delivering
00:56 premium grade cannabis across Canada
00:58 at a really competitive price.
01:00 - Now, we mentioned how this is such an interesting market.
01:03 It has been for years and years and years.
01:05 How are you able to kind of deliver high-end cannabis
01:08 at competitive prices while still maintaining your margins
01:11 and staying profitable?
01:12 - It's been since 2018,
01:14 we've been working on creating the Canara platform.
01:16 And really, we've created two unique characteristics
01:20 of our Canara platform that really allow us
01:23 to achieve what you just asked, right?
01:24 Delivering premium quality products at affordable prices
01:27 so we can disrupt the market.
01:29 And those two things are, one, being based in Quebec.
01:32 Quebec has the lowest cost of electricity and labor
01:36 and utilities across the country.
01:38 And that so happens to be the largest cost inputs
01:42 of cannabis cultivation.
01:44 So we are able to create quality cannabis,
01:47 focus on quality and additional quality metrics
01:50 that other licensed producers cannot focus on,
01:53 put those costs, incur those costs,
01:56 but leave out with a 35 to 45% gross margin
01:59 and deliver profit and operating cash flows.
02:02 The second important thing, like I mentioned,
02:05 is our two mega facilities.
02:07 Our recent facility, which we acquired in 2021,
02:10 we acquired it for $27 million.
02:12 This facility was built by one of our competitors
02:15 for over $250 million.
02:18 So the cost savings of carrying that facility
02:21 as we turn on and start producing more and more,
02:25 we're only about 35% of our total output right now.
02:28 So we've got a long road ahead of continuing scaling
02:31 at our facility, but having that facility
02:33 at such a low acquisition costs,
02:35 again, allows us to deliver those cost advantages.
02:38 - I love the fact that you mentioned
02:39 that you have lower electricity
02:41 and the resources just cost less in the Quebec region.
02:43 'Cause it's kind of like, hey,
02:44 the physical cost of goods sold
02:45 might be the same across the country,
02:47 but you've got a bit of an advantage
02:48 to save those basis points there as well.
02:51 Now, let's talk about your Q3 financials,
02:53 which showed a 96% increase in revenue year over year
02:56 and 30% of Q quarter over quarter.
03:00 How are you achieving this sort of growth?
03:02 Like when did you expect it to kind of level out?
03:04 Now, I know you mentioned the competitive advantages
03:06 that you have, but what else is there to the story?
03:08 - Honestly, we're just getting started.
03:10 We launched in 2021 in Quebec,
03:12 only Quebec, the only Quebec in Canada.
03:15 And we started, you know,
03:18 we quickly climbed to being third largest producer
03:21 in that province with an 8.8% market share.
03:24 Just last year, when we acquired our Valleyfields,
03:27 we started producing and scaling it up.
03:30 We had enough production to start scaling
03:32 in the rest of the markets of Canada.
03:35 So about a year and a half ago,
03:36 we scaled into Ontario, BC,
03:39 and just in May of 2023, we scaled into Alberta.
03:42 We're only in those five main provinces right now,
03:46 as well as Saskatchewan.
03:47 There's still many markets to go
03:49 and international markets to explore.
03:52 But because we focused on quality at affordable prices
03:57 and really targeting consumer wants in the cannabis market,
04:01 our products are flying off the shelf.
04:05 So we're just seeing continuous quarter over quarter
04:08 market share growth across every market.
04:10 Alberta in May of 2023, when I launched,
04:12 I was 0.1% market share.
04:14 I'm now 2.3% market share in three to four months
04:18 since our launch.
04:19 We've launched over 70 SKUs, unique SKUs in 2023.
04:24 And just from August in our fiscal 2023,
04:27 from August till December of calendar 2023,
04:30 I have another 40 SKUs to launch.
04:32 So what we've done here is really a crawl, walk, run approach
04:37 really, you know, probably yet a running phase right now,
04:41 but we've taken a much slower approach,
04:43 focus on building a sustainable business,
04:45 focus on the quality of product,
04:47 validate that in the Quebec market,
04:49 and then start scaling it into other markets.
04:52 So, you know, expect this quarter over quarter
04:56 to continue to increase.
04:57 We're only 35% production capacity right now
05:00 of our potential output.
05:01 So, and everything's organic.
05:03 So as soon as I see demand escalating
05:06 and we don't have enough production,
05:07 we just turn on a new room and turn on more production
05:10 and we don't have to buy cannabis or, you know,
05:13 rely on the market and have that quality inconsistencies
05:16 that a lot of our peers have.
05:18 So having that full control, being able to scale market
05:22 is really the key to us.
05:24 So we're gonna see quarter over quarter growth.
05:27 And what's really, really interesting is like,
05:30 all up until that this year,
05:32 we've spent very minimal dollars in marketing
05:35 to the point where I don't have any in-store display
05:39 across Canada.
05:40 So there's absolutely no retail display
05:43 inside any retail shop in Canada that we've provided.
05:48 Everything has been organic and word of mouth.
05:50 And, you know, we still have that toolkit
05:52 to continue progressing with.
05:54 - I'm surprised you don't have any fat heads
05:56 in the retail stores, but I'm sure that'll drive sales
05:58 when you do roll that out.
05:59 Something that stuck out to me is that you mentioned
06:01 you have 70 SKUs at the moment,
06:02 and I believe you said you're planning on rolling out
06:04 about 40 additional in the future.
06:06 How do you make sure that you're not having a surplus
06:09 in terms of inventory with almost 100,
06:11 and what is that 130 SKUs that might be coming up ahead?
06:15 - Yeah, so it's really creating our brands
06:18 and creating the product portfolio within our brands
06:20 that utilize the full plant.
06:23 So because we cultivate and we have access
06:26 from the biomass of the plant,
06:29 we're able to, the A buds, the top of the plants,
06:32 the bottom of the plants,
06:33 we're able to use the entire plant either in dry form
06:36 or as well before it's harvest,
06:38 freeze it and use it for extraction and other processes.
06:41 So we have three flagship brands,
06:43 it's Tribal, Nugs and Orchid CBD.
06:46 And we basically, our objective as Canara
06:50 is to find genetics in the market,
06:53 find unique and exclusive cannabis genetics,
06:56 and that's what really propels our SKU count.
06:59 If we do our job well on finding exotic genetics
07:03 that consumers want and get excited about,
07:06 well, one genetic can turn into 20 to 30 different SKUs
07:09 across all different categories.
07:11 So what's important here and what we're focused on
07:13 is genetics, and we have a collaboration
07:17 with Exotic Genetics, a breeder in Washington
07:21 who helps us really learn about these exclusive genetics
07:25 and work with us to really improve
07:27 and dial in the quality of cannabis that we're looking for.
07:31 And that's what we, the results are,
07:33 a lot of customer appreciation and brand loyalty in cannabis
07:36 which is so far non-existent.
07:39 - Yeah, I mean, it's so important to just make sure
07:40 you don't have too much of an inventory
07:42 because then that's cashflow and that's opportunity costs
07:45 that you could be deploying that cash somewhere else.
07:46 Last one for me, what do you think is so unique
07:50 about the Canadian cannabis market?
07:52 And what do you think is kind of like the key
07:54 to its long-term success?
07:55 Is it something that the government can do?
07:57 Is it something that the private sector needs to do?
07:59 What are your thoughts in terms of unlocking
08:01 more potential in this space?
08:03 - Yeah, it's definitely a highly regulated environment.
08:07 It's extremely competitive, it's cutthroat, right?
08:09 Everyone's trying to survive right now.
08:12 They're reducing prices, they're just trying
08:14 to grab revenues.
08:15 Canaro, we really built a platform.
08:19 We're building a sustainable business.
08:21 It's our 10th quarter of positive adjusted EBITDA.
08:24 We're in positive operating cashflow.
08:27 We have net income.
08:28 So we're here to stay.
08:31 And I think really licensed producers need to focus
08:36 on the current market, not rely on things to change, right?
08:42 We need to make your business work in the current market.
08:45 And then after that, if things change,
08:47 your business will thrive even more, right?
08:50 So if we can operate in this highly regulated environment,
08:54 I'm excited for excise tax reform.
08:57 I mean, we're paying 30 to 33% of our total revenues
09:02 in excise tax.
09:03 The edible category, lifting the restrictions
09:07 on edible category, the marketing restrictions.
09:11 There's definitely a lot I'd like to see in the future,
09:14 but I'm also excited just to keep it status quo
09:19 because we're one of the few ones growing
09:24 and doing extremely well in this regulated
09:28 and competitive market.
09:29 And I'm okay for it to last longer
09:32 and just continue to thrive in this setting.
09:34 - Yeah, I feel like the one downside
09:36 to having such regulation is that you are kind of limited
09:39 in what you can do and how fast you can do it.
09:41 But the upside of it is that there are a lot
09:43 of regulatory things that companies need to pass
09:45 and make sure you get the best of the best
09:46 in terms of quality product and all that,
09:49 especially in this type of sector.
09:50 But Nick, thank you so much for hanging out
09:52 with me today, man.
09:53 - Oh, it was a pleasure, Zainab.
09:54 Thank you very much for having me.
09:55 - And that's Nick Soziak, who is the CFO of Canera Biotech.
09:58 For all things finance, check out benzinga.com.
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