The Cannabis Sector Was On Fire In 2018, But Which Companies Will Dominate In 2019 and Beyond?
Meet The Supreme Cannabis Company (TSX:FIRE) (OTC:SPRWF), The Disruptive Company Major Cannabis Giants Are Watching Like A Hawk
With Canadian cannabis legalization finally at hand, we’re now presented with an incredible opportunity for an early-bird advantage in this the first non-prohibition year. Already, the cannabis sector has spawned several multi-billion-dollar giants, including Aurora Cannabis, Aphria, Canopy Growth and Tilray.
Wall Street’s No. 1 pot analyst is already projecting the overall cannabis market to one day be worth $500 billion[1]. With the revolution underway, the unique opportunity is in finding companies with an established first-mover advantage, who established distribution coverage across Canada ahead of legalization—where others now may be playing catch up.
When using this criteria, a leading candidate is The Supreme Cannabis Company Inc. (TSX: FIRE) (OTC: SPRWF), also known as ‘Supreme Cannabis’, has steadily built out its distribution across Canada with provincial stores and major licensed producers, all while building a very strong reputation for high-quality, premiere cannabis product.
Now the majors are taking notice. Supreme Cannabis’ status has skyrocketed, culminating in major deals with giants such as Aurora and Tilray, who’ve invested millions for the right to resell Supreme Cannabis alongside their own.
Producing High-Quality Strains for a Higher Demand
Supreme Cannabis (TSX: FIRE) (OTC: SPRWF) has built its platform on producing higher-quality strains, rather than mass producing average ones. The strategy is meant to work as a hedge against any potential oversupply gluts such—as has been witnessed in Oregon2. The concept uses a quality advantage that carries over into all types of markets (both high supply or low supply), as high-quality cannabis is always in demand.
According to Deloitte’s 2018 Cannabis Report3, Canadian consumers are willing to pay a premium for cannabis grown and processed after legalization in all parts of Canada—up to a 10% price increase.
Among cannabis buyers, those with a refined taste tend to skew towards high-quality products, all while making up the largest segment of the consumer base. All the more, this market looks towards influencers to make their informed decisions regarding new products.
According to Ontario Finance Minister Vic Fedell, “20% of users consume 80% of cannabis.”4
A report put out by Bridgeable titled “Legal Aged Recreational Cannabis Enthusiast Buying Behavior 2018” reinforces the discerning tastes of these power-consumers. Among these informed consumers, 85% of cannabis enthusiasts won’t purchase products with subpar scent and/or flavor, and 63% will reject projects not passing their visual inspection— trends that play into Supreme’s business plan.
The numbers don’t lie, as already Supreme Cannabis’ (TSX: FIRE) (OTC: SPRWF) high-end offerings are yielding high-end results—including a series of guaranteed supply agreements with majors Tilray Inc., Aurora Cannabis, Emerald Health Botanicals, and Namaste Technologies.
The company has continued to grow exponentially since its start in mid-2017, setting new records along the way. The company’s Q2 2019 revenues were $7.72 million, up 359% from Q2 2018, and up 50% from the previous quarter’s $5.14 million. Using their Q2 numbers, Supreme’s annualized revenue run rate of $30.88 million would already surpass other notable industry names such as Cronos Group (mkt cap: USD$3.811 billion) and MariMed Inc (mkt cap: USD$813.15 million).
Most recently, Supreme Cannabis’ (TSX: FIRE) (OTC: SPRWF) wholly-owned subsidiary, 7ACRES was recognized as the Brand of the Year at the 2018 Canadian Cannabis Awards.
7ACRES was selected by a panel of industry professionals across a variety of sectors in the cannabis space. The award recognizes the enormous effort behind creating a brand, strategy, culture, image, and impact that resonates in the public consciousness.
The company doesn’t stop there with its flagship brand. Supreme Cannabis (TSX: FIRE) (OTC: SPRWF) is now also working to develop new high-end cannabis oil products for the adult-use market, through an agreement with MediPharm Labs. The company’s premium strains are a perfect fit for extracted cannabis oil products, which gives Supreme Cannabis yet another advantage in the high-end market.
Since its inception, it’s been more than apparent that The Supreme Cannabis Company (TSX: FIRE) (OTC: SPRWF) is a premium tier company.
Supreme Has FIVE Strategic Advantages Propelling Its Explosive Growth in the Cannabis Sector
If Supreme Cannabis’ (TSX: FIRE) (OTC: SPRWF) future performance continues to outpace companies like Canopy Growth and Tilray, as it did over its first four quarters, then there could be a lot to be excited about this “premium producer”of the cannabis world. Through its Q2 2019 financials release, it appears that the upward trend for the company continues.
Majors such as Tilray Inc., Aurora Cannabis, Emerald Health Botanicals, and Namaste Technologies are already buying up Supreme Cannabis’s products through guaranteed supply deals. Industry professionals across a variety of sectors in the cannabis space have recognized the company’s 7ACRES brand as Brand of the Year—which could very well lead to even more supply deals in the future.
In this newly legalized marketplace, it’s no longer going to be a race for who can produce, but who can sell through their product the fastest—and Supreme Cannabis (TSX: FIRE) (OTC: SPRWF) is proving that there’s a high demand for their high-quality strains.
Supreme Cannabis’ (TSX: FIRE) (OTC: SPRWF) success has been driven by five strategic advantages. These five advantages have helped Supreme outperform the competition as they grow (and sell) to become the predominant high-quality, premium producer in the Canadian cannabis industry.
STRATEGIC ADVANTAGE #1: High-Quality Reputation Leading to Record-Setting Sales
Through its 7ACRES subsidiary,Supreme Cannabis (TSX: FIRE) (OTC: SPRWF) is the only licensed producer focused on cultivating high-THC, high-quality cannabis at commercial scale.
After recently adding 30,000 sq ft of additional licensed flowering room capacity, the company’s current production potential is 17,500 kg. Perhaps more astounding, is how the company added more than 80,000 sq ft of licensed flowering room capacity in less than 12 months.
The 7ACRES subsidiary is already a respectable craft cannabis producer, however by 2019 the estimated ‘full capacity’ rate could hit a whopping 50,000 kg. In contrast, fellow craft cannabis producers Broken Coast Cannabis (who signed a supply deal with Aphria) announced in April that it was set to expand its capacity to only 4,500 kg annually.5
Supreme Cannabis’ (TSX: FIRE) (OTC: SPRWF) high-quality 7ACRES strains are designed for connoisseurs and medical consumers willing to pay more for quality products. Their success has shown Supreme to be leaders in mass cultivation, leading 7ACRES to emerge as Canada’s premier B2B producer.
This unique ability to mass produce high-quality cannabis has drawn the attention of majors producers. Purchase agreements with Tilray, Aurora, and Namaste prove this concept is working—Tilray has even agreed to white label Supreme Cannabis’ (TSX: FIRE) (OTC: SPRWF) products under its own name, reflecting a high level of confidence in the 7ACRES brand potential.6
While larger LPs can produce cannabis at lower costs, the cannabis giants have been unable to replicateSupreme Cannabis’ (TSX: FIRE) (OTC: SPRWF) ability to scale up premium cannabis production capacity.
The result has been a series of record-setting sales markers, most recently witnessed by yet another significant revenue increase in Q2 2019. With its most recent $7.72 million quarter, Supreme Cannabis’ (TSX: FIRE) (OTC: SPRWF) is currently outpacing such industry giants as Cronos Group Inc. and Marimed.
STRATEGIC ADVANTAGE #2: Connection to International Oils Market Through Massive Lesotho Deal
The global medical cannabis market has been projected from a conservative $145 billion7, to a bold projection of $500 billion8—extending far beyond the Canadian recreational marketplace.
Seeing theglobal opportunity for growth,Supreme Cannabis (TSX: FIRE) (OTC: SPRWF) partnered with international medical cannabis supplier, Medigrow. The deal establishes a foothold in the medical cannabis oils market, providing Supreme Cannabis (TSX: FIRE) (OTC: SPRWF) access to a potential 40,000 litres of cannabis oil per year.
Having already capitalized on its first-mover advantage in Canada, Supreme Cannabis (TSX: FIRE) (OTC: SPRWF) is seeking to replicate this huge opportunity by aiming for market share in more countries set to legalize cannabis in the future. Supreme Cannabis (TSX: FIRE) (OTC: SPRWF) is the first LP to move into the Lesotho market.
Securing international opportunities such as Medigrow’s 40,000 litres of cannabis oil potential per year brings significant global medical marijuana market potential.
STRATEGIC ADVANTAGE #3: Discerning Canadian Cannabis Consumers Seek High-Quality Products
“Twenty percent of the users consume 80 percent of the cannabis.”
Ontario Finance Minister, Vic Fedell
The term “cannasseur” may be a play on the words connoisseur and cannabis, but the potential market that targets these cannasseurs could be very substantial.
With its high-THC strains, the cannasseurs are Supreme Cannabis’ (TSX: FIRE) (OTC: SPRWF) target demographic. The aim is for a premium product that discerning customers will go out of their way to purchase. Supreme Cannabis (TSX: FIRE) (OTC: SPRWF) believes it has its finger on the pulse of this market, and its purchase agreements with medical supplies such as Tilray prove their product is of the highest (medical grade) quality.
Having already won the recent Canadian Cannabis Awards’ Brand of the Year, Supreme Cannabis’ (TSX: FIRE) (OTC: SPRWF) reputation of the company is very highly regarded.
Supreme Cannabis’ (TSX: FIRE) (OTC: SPRWF) first-mover advantage in the cannasseur demographic is critical: By being on 6 out of 12 provincial shelves as of day one, and with a superior product, Supreme Cannabis’ (TSX: FIRE) (OTC: SPRWF) has already established its brand as a national cannabis leader from the start.
The company already has supply agreements in all of Canada’s highest consumption rate provinces.
When looking at the liquor store model, only 10% of products are removed from shelves once the selection is established. This hints that the same could be in place for cannabis—meaning first mover advantage is very real, and Supreme Cannabis’ (TSX: FIRE) (OTC: SPRWF) early entry with high-quality products is a distinct advantage.
Supreme Cannabis’ (TSX: FIRE) (OTC: SPRWF) products aren’t all just high-THC, as the company also produces other strains that are high-quality and less potent strains, which are becoming popular and in-demand.9
STRATEGIC ADVANTAGE #4: Well Positioned for the Massive, High-Margin Concentrate Market
The cannabis concentrates market is soaring, as consumer spending on them in the U.S. alone is projected to reach almost $3 billion in 2018.10
By focusing on quality high-THC strains Supreme Cannabis (TSX: FIRE) (OTC: SPRWF) is positioned to be a key player in this massive, high-margin concentrate market, which is scheduled to become legal in October 2019.
In November 2018, Supreme Cannabis (TSX: FIRE) (OTC: SPRWF) announced it was in development with MediPharm Labs to launch a new line of cannabis oil products. The company will supply its partners with approximately 1,000 kg of high-quality cannabis trim as input per year for the extraction and production of at least 200,000 40 ml units of premium, high-terpene cannabis oil products for the adult-use consumer market.
To produce concentrates, high-quality (High-THC) flowers are needed as inputs—mid-level strains just won’t work.
The extraction process uses dried cannabis flower to creates a glass-like product called “shatter” or a smoother (whipped) product called ‘budder’.
Legal Age Cannabis Enthusiasts (or “cannasseurs”) and heavy medical cannabis users tend to favour concentrates—as they offer the highest THC% (strongest effects), all while not consuming organic plant matter that harms the smokers’ lungs.
STRATEGIC ADVANTAGE #5: Opening New Revenue Streams Through Medical Partnerships with Majors
Supreme Cannabis (TSX: FIRE) (OTC: SPRWF) has been very successful in medical marijuana marketplace, through partnerships with established giant licensed producers.
These partnerships include THREE major LPS : Tilray, Namaste, and Aurora.
Each of these deals (including the $12 million supply deal with Tilray) not only represent an industry-wide stamp of approval, but also serve as a proof of concept for Supreme Cannabis (TSX: FIRE) (OTC: SPRWF)—LPs with much more grow space still see Supreme’s products as worthy of buying and adding to their menus.
Despite the amount of cannabis being grown in Canada, high-quality cannabis is clearly still in high demand. Even the majors are struggling to replicate Supreme Cannabis’ (TSX: FIRE) (OTC: SPRWF) product quality.
STRATEGIC ADVANTAGE #6: A Significantly Lower Market Cap
The lead up to legalization has seen several licensed producers enjoy major gains. Now Supreme Cannabis (TSX: FIRE) (OTC: SPRWF) with a market cap of 655.28M[1], is primed to carve its premium niche in 2018-19.
The cannabis sector has been on
fire in 2018, but major cannabis LPs specifically gave outsized returns to
investors. Here are a few success stories the market witnessed during the
lead-up to legalization:
Aurora Cannabis Inc. (NYSE:ACB) (TSX:ACB)
Market Cap: $5.044 billion
Canopy Growth Corporation (NYSE:CGC) (TSX:WEED)
Market Cap: $9.45 billion
Curaleaf Holdings, Inc. (CSE:CURA) (OTC:CURLF)
Market Cap: $2.129 billion
Tilray, Inc. (NASDAQ:TLRY)
Market Cap: $7.17 billion
THE SUPREME TEAM
Built to lead the company through the legalization window, Supreme Cannabis’ (TSX: FIRE) (OTC: SPRWF) management team is a perfect mix of marketing and regulatory experience, in particular within the alcohol and tobacco sectors.
Supreme Cannabis (TSX: FIRE) (OTC: SPRWF) is led by CEO & Director Navdeep Dhaliwal, and President, Founder, & Director John Fowler, who have assembled a team that’s equipped to take the company into the top cannabis tier:
- President John Fowler founded The Supreme Cannabis Company (TSX: FIRE) (OTC: SPRWF) in 2014, and previously served also as the CEO, and Director of Operations. Mr. Fowler’s career also includes law, and management in the customer service industry.
- CEO Navdeep Dhaliwal’s experience highlights a focus on international expansion, having had success as principal of NLX Capital Corp.—a corporate development company focused on technology and renewable energy development into Southeast Asia.
- Vice President of Marketing & Regulatory Affairs Omer Azeez brings invaluable experience, especially from his time at Philip Morris International. At Philip Morris, Azeez held various positions including Manager, Senior Marketing where he defined the marketing message for Philip Morris’ alcohol and tobacco products, two industries recognized as parallels to legal cannabis.
- Chief Financial Officer Dimitre Naoumov came to Supreme from his previous tenure at KPMG LLP, where he held various positions including his most recent as Senior Manager in the Assurance practice.
The Supreme Cannabis Company (TSX: FIRE) (OTC: SPRWF) team and board include team members from a variety of backgrounds including McCain Foods, Primaris REIT, Apotex Pharmachem, BlackBerry, Deloitte Consulting, and former President of Starbucks Coffee Canada, Colin Moore, who also held marketing positions at PepsiCo, KFC, and Yum! Brands.