Fertile Ground for Canadian Cannabis Producers

NetworkNewsWire Coverage: Canada leads the global trend to legalize and regulate medical and recreational cannabis, and some of the biggest players in the space are listed on Canadian stock exchanges. One of the public companies attracting attention in the sector is DOJA Cannabis Company Ltd. (CSE: DOJA) (OTC: DJACF) (DOJA Profile), which grows high-quality, hand-crafted cannabis, operates one retail store in Kelowna, British Columbia and is focused building the premier cannabis lifestyle brand in the industry. To bolster its retail ambitions and brand focus, DOJA recently announced a merger with fellow leading lifestyle cannabis brand company Tokyo Smoke and also announced a concurrent strategic investment of $10 million from Aphria, Inc. (OTCQB: APHQF), (TSX: APH) (http://nnw.fm/jML2w). The combined company resulting from the merger will use the name “Hiku Brands Company Ltd.” to refer to the brand house containing premium cannabis brands DOJA, Tokyo Smoke, and Van der Pop. The Merger will create a uniquely positioned cannabis company combining a best-in-class craft cannabis producer with an award-winning lifestyle brand and retail-focused cannabis company. Other companies vying for increased retail recognition in the marijuana marketplace include Canopy Growth Corp. (TSX: WEED) (OTC: TWMJF), Emblem Corp.  (TSX.V: EMC) (OTC: EMMBF), Golden Leaf Holdings Ltd. (CSE: GLH) (OTCQB: GLDFF) and The Supreme Cannabis Company, Inc. (formerly Supreme Pharmaceuticals) (TSX.V: FIRE) (OTC: SPRWF).

The Canadian cannabis market reaching new highs 

While the United States wallows in legal disunity, Canada is now the largest regulated cannabis producer in the world. Medical cannabis is already a multi-million-dollar industry in Canada and, with the legalization of recreational use slated to begin July 1, 2018, licensed producers are ramping up production and positioning for retail recognition in advance of the adult use market opening up.

Total market value of recreational marijuana in Canada worth up to $22.6 billion

The retail market value of recreational marijuana in Canada is expected to reach $8.7 billion annually. Add in ancillary services such as testing labs, lighting and security systems, and Deloitte projects total market size could reach $22.6 billion (http://nnw.fm/6Rj9w). Market size could far exceed expectations when taxes, licensing fees, and marijuana-related tourism are factored in. Deloitte also estimates that fulfilling the demand for recreational marijuana will mean producing over 600,000 kilograms of marijuana annually, far more than existing licensed producers grow for medicinal purposes.

Branding, marketing and quality will be the differentiators

The Canadian marijuana market remains fragmented as licensed producers prepare for the expected tsunami of recreational demand. Retail distribution is almost an afterthought for the majority of cannabis companies that have a “grow it and they will come” attitude. DOJA Cannabis Company Ltd. (CSE: DOJA) (OTC: DJACF) has distinguished itself from its peers by combining a ​​best-in-class ​​craft ​​cannabis ​​producer with ​​a retail-focused cannabis company that has a substantial national retail footprint and offers a portfolio of premium cannabis lifestyle brands.

Experience and expertise matter

DOJA is led by branding wizard, founder and CEO Trent Kitsch. A successful and experienced entrepreneur, Kitsch founded SAXX Underwear Co. in 2007 and built the company into a fast-growing globally recognized brand. He sold the company in 2016. Known for his hustle, audacity and branding prowess, Kitsch founded DOJA in 2014 with the vision of creating a premium cannabis lifestyle brand for Canada’s legal marijuana market. An MBA graduate of the Richard Ivey School of Business with a major in entrepreneurship, Kitsch was recently selected as one of 10 Ivey Ambassadors for Entrepreneurship.

Partnerships and positioning set the stage

Retail positioning is imperative to capture an out-sized share of the nascent multi-billion-dollar marijuana market. DOJA’s recently announced binding Letter of Intent to merge with Tokyo Smoke creates a rapidly expanding nationwide retail footprint featuring a portfolio of visionary cannabis brands.  The merger, scheduled for completion by March 2018, will create Canada’s first nationwide retail and brand-focused cannabis producer. With award-winning cannabis accessory stores and locations across the country, Tokyo Smoke owns two well-recognized premium cannabis brands and is the recipient of the 2017 Canadian Cannabis Brand of the Year Award. The transaction also brings together industry leading management teams with decades of experience from Google, Samsung, Bain & Company, Barneys New York, Lululemon, Cronos Group, and Marley’s Natural among others.

In a testament to the viability of the merger, Aphria Inc. (TSX: APH) (OTC: APHQF), one of Canada’s premier established producers, announced plans to invest more than $10 million in the merged company to gain leverage in the recreational marijuana market (http://nnw.fm/J2hV6).

Strategic Capital Partners are Essential

On Jan. 9, DOJA, in conjunction with Aphria, announced the closing of the $12.5 million strategic equity investment by Aphria (http://nnw.fm/PfyF0). Aphria recently raised $100 million for use in financing cannabis production facilities at home and abroad, and $12.5 million of it was ear-marked as a strategic investment in DOJA through the purchase of convertible subscription receipts. With a market capitalization of nearly $2.5 billion, Aphria is also the exclusive supplier to Shoppers Drug Mart, Canada’s largest retail pharmacy chain.

Upon completion of the merger, it’s expected the newly formed company will use the name Hiku Brands Company Ltd. With the capital infusion by Aphria, Hiku will have a cash balance over $31 million and be well positioned to increase its cannabis production capacity, enlarge its retail footprint and add select brands to its portfolio through accretive and synergistic acquisitions.

Commenting on the deal, Aphria CEO Vic Neufeld stated, “This transaction has the twofold benefit of providing us access to strong brands, through Tokyo Smoke and DOJA, and craft-cultivated British Columbia bud, through DOJA. Quality product and recognizable consumer brands will be key differentiators for patients and consumers, and we’re looking forward to continuing our work with Hiku to create premium cannabis brands in Canada.”

Location, location, location

As Deloitte noted in its report, marijuana-related tourism is expected to be no small factor in the $22 billion-plus Canadian cannabis market. DOJA’s wholly owned subsidiary, is situated in the heart of British Columbia’s Okanagan Valley, known as the picturesque “Napa of the North.”

The Kelowna area attracted nearly 2 million visitors in 2016 and that number is expected to grow with the advent of marijuana tourism. Located on Kelowna’s busiest street, DOJA operates the Culture Café, which serves as a cannabis information center generating brand awareness right in the middle of the tourist district.

Commenting on production at the facility, DOJA CEO Trent Kitsch stated, “I’m extremely proud of our cultivation team, they have delivered on all levels, the quality of our flower is impressive, and the yields exceeded our expectations. Post-harvest, our flowers were expertly hand-trimmed, hang-dried and artisanally cured. Our handcrafted approach is aimed at producing the finest cannabis with exceptional aroma, flavor and effects.”

DOJA expects to deliver more than 5,000 kg of artisanal bud annually with its planned new facility (http://nnw.fm/JNn8l). Initial cannabis harvests have already been completed and DOJA awaits Health Canada pre-sales inspection for retail to commence.

Others positioning for greater retail recognition in the coming cannabis bonanza

The grandfather of Canadian cannabis production, Canopy Growth (TSX: WEED) (OTC: TWMJF) was the first federally regulated, publicly traded cannabis producer in North America. Canopy, through its wholly owned subsidiaries, operates numerous production facilities with over 700,000 square feet of licensed production, over 500,000 square feet of which is GMP-certified. With a focus on educating healthcare practitioners, conducting clinical research, and furthering the public cannabis education, Canopy and its affiliates have plans to develop a production platform that would represent 3.2 million square feet of indoor and greenhouse production capacity. The company has established partnerships in Canada and abroad, with interests and operations spanning four continents.

The Supreme Cannabis Company (formerly Supreme Pharmaceuticals) (TSX.V: FIRE) (OTC: SPRWF) aims to become a leading cultivator and distributor of affordable sun-grown cannabis by applying commercial agriculture practices to cannabis production. Its wholly owned 7ACRES subsidiary is a Canadian federally licensed producer of cannabis operating inside a 342,000-square-foot Hybrid Greenhouse facility. The Hybrid Greenhouse combines the technology of indoor production with the efficiencies and sustainability of a greenhouse in a single large-format production footprint. Supreme currently has a retail footing in oils via a partnership with Aurora Cannabis.

Emblem (TSX.V: EMC) (OTC: EMMBF) is an integrated licensed producer and distributor of medical cannabis and cannabis derivatives in Canada under the ACMPR (Access to Cannabis for Medical Purposes Regulations). Emblem has a strategy across three verticals: cannabis production, patient education centers and pharmaceutical dosage form development. Like others, Emblem is vying for position within Canada’s large and growing medical and recreational marijuana industry. The company currently has over 8,500 square feet of flowering capacity at its closed box facility in Paris, Ontario. A recent land acquisition for expansion of its greenhouse facilities would increase Emblem’s total production capacity to upwards of 17,000 kgs. of dried flower per annum.

Canada-based Golden Leaf Holdings (CSE: GLH) (OTCQB: GLDFF), with operations in Portland, Ore., is one of the largest cannabis oil and solution providers in North America and has several recognized brands. Golden Leaf cultivates, extracts, manufactures and distributes its products through its branded Chalice Farm retail dispensaries, as well as through third party dispensaries. Golden Leaf believes its advanced research techniques enhance the extraction, refining, marketing and selling of high quality cannabis oils.

Be selective and focus on brand differentiation

There’s little doubt the advent of legalized recreational marijuana in Canada will present immense opportunities as well as some logistical challenges. Companies that establish a dynamic retail presence with recognized national consumer brands could out-pace the competition and potentially deliver exceptional relative returns – savvy investors should take notice of the cannabis companies focused on brand differentiation.

For more information on DOJA Cannabis Company, visit DOJA Cannabis Company Ltd. (CSE: DOJA) (OTC: DJACF).

For a more in-depth look into DOJA Cannabis (CSE: DOJA) (OTC: DJACF), view the full report on Microsmallcap.com.

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