With two of the top 10 selling edible cannabis products in California under its banner, one of the fastest growing brands in California’s cannabis market has gone public—with aims to build one of the largest food-grade cannabis produt manufacturing plants in the state.
Through an IPO that raised $15 million, PLUS Products (CSE: PLUS) aims to build a food manufacturing space capable of handling $150 million in annual production. That’s just the beginning, as further expansion starting as soon as 2020 is anticipated to enable $450 million in production capacity.
Climbing to manufacturing capacity of $150 million per year would put a company in a significant league of majors that includes Canopy Growth Inc. (TSX: WEED) (NYSE: CGC), Aurora Cannabis Inc. (OTC: ACBFF) (TSX: ACB), Aphria Inc. (TSX: APH) (OTC: APHQF), and The Green Organic Dutchman Holdings Ltd. (TSX: TGOD) (OTC: TGODF). As of Q2 2018, Canopy leads the sector with $25.9 million in cannabis-only quarterly sales.
MANUFACTURING BRAND SUCCESS
Now evolving from a privately held to a publicly traded company, PLUS Products has been on a steady growth pattern since entering the California edibles market. In December of 2017, PLUS moved to its current 12,000 sf manufacturing facility in Adelanto, CA, which has an annual production capacity of $50 million.
In a short span, PLUS has demonstrated its ability to execute, especially when it comes to revenue growth. Year-over-year, PLUS has increased revenue over 600%—from $330,000 in Jan-Jun 2017 to $2.45 million in Jan-Jun 2018.
Boasting six infused gummy candy SKUs that are currently carried in over 200 licensed dispensaries and delivery services, PLUS Products is one of the fastest growing brands in California’s cannabis market.
Pairing disciplined manufacturing with thoughtful branding is a strategy that is working for PLUS. Since the move into its current facility, PLUS has consistently grown its market share, moving into the Top 5 edibles players in the state, in terms of retail sales. The company’s market share has grown to a respectable 5.31% of manufactured products dollar market share in Q2 2018.
CANNABIS BRANDING TO COMMAND LONG-RUN MARGINS
Though the cannabis sector is still technically in its infancy, there’s an expectation that cannabis product margins will soon become more like the consumer packaged goods market. When looking at liquor brands, one can get a better insight to the potential future brands in the cannabis industry.
Canopy Growth’s strategic partner, Constellation Brands, is a leader in liquor branding, reporting a price-earnings ratio (P/E) of 22.1x and a profit margin of 32% and a gross margin of 50%. However, despite these favourable margins, Constellation still saw a strategic advantage of getting into the cannabis space early—a strategy which Merida Capital Partners’ Mitch Baruchowitz calls a “home run”.
The cannabis industry is moving towards branded products. By looking at the evolution of the cannabis market in Colorado, branded products are growing rapidly compared to non-branded products.
According to BDS Analytics’ Green Edge, total legal cannabis retail sales in Colorado, between Q1 2014 to Q1 2018, sales for branded products grew 71%, whereas non-branded products only grew 64%.
The market is evolving, with the biggest growth coming in the branded selections. These brands are creating new categories, sub-categories, and methods of consumption.
Edibles have grown as a % of total retail sales as well, in both Colorado and California—growing from 12% to 16% of total sales, with still an upward trend continuing. As well, the prices of edibles are staying more stable, whereas concentrates and flower prices have dipped since Q2 2015.
CALIFORNIA’S CANNABIS ADVANTAGES
The state of California is so far the largest cannabis market in the world, and is expected to grow to $5.0 billion in 2019 legal sales. In comparison, the entire country of Canada is expected to yield $2.7 billion in 2019 legal sales, according to Arcview Market Research & BDS Analytics’ report The State of Legal Marijuana Markets 6th Edition.
Which is where PLUS Products has an early advantage, through its primary target market. California’s market is by far the most competitive. Due to its long history of medical legalization, California has driven itself to have more nearly 250 brands of edibles, according to BDS Analytics GreenEdge reporting: count of edible brands with revenue in 2017, excluding tinctures.
PLUS has focused itself on this branded product space. By building its product manufacturing operation in the largest and most competitive cannabis market, PLUS Products has staked out its strategy to work towards dominating the branded product space. The goal is to utilize knowledge from scaling in California to enter new markets with a selection of proven products and brands.
CHARGING OUT OF THE GATE
So far, PLUS has produced a Top 5 edibles product, a Top 10 product, and the #1 CBD-Only edibles product. Through strategic branding and launches of limited edition products, PLUS is staying very relevant in the competitive California cannabis market. PLUS already has winning products in each of the adult use, medical, and CBD segments.
PLUS is well-equipped to handle all food manufacturing, distribution, and branding challenges that will arise. Led by CEO Jake Heimark, a strategy and branding tech entrepreneur with previous product manager experience tied to Facebook.
Also among the PLUS team are familiar faces from the group that founded The Green Organic Dutchman Holdings Ltd. (TSX: TGOD) (OTC: TGODF), including TGOD’s Finance & Strategy Executive Vice President Matt Schmidt as a Director. The PLUS team brings a wide array of experience from such companies as UBS, Uber, Facebook, Mission Foods, Quaker Oats, Kraft Foods, Polaroid, and Gillette.
Management has zeroed in on a narrow focus to build brand value, while using its industry knowledge from scaling in California to enter new markets with proven products and brands.
Now with the IPO launched, PLUS Products (CSE: PLUS) is moving forward towards expanding its production capacity. First on deck is to expand its food manufacturing square footage from 12,000 to 40,000 sq ft, which Plus claims is fully funded. The company has a current production line capacity of two lines, which can be upgraded to an additional three lines.
But most importantly, the goal is to turn this $15 million IPO into $150 million in production capacity.
LEADING CANNABIS COMPARABLES
Aphria Inc. (TSX: APH) (OTC: APHQF)
Founded in the farming town of Leamington, Ontario, by two greenhouse operating veterans Aphria Inc. has grown into a company with a market cap of more than $3.8 billion. The company’s focus has been on cheaper production of cannabis. Aphria recently announced that it has filed to up-list its stock to the New York Stock Exchange. When APHQF begins trading on the NYSE, it will be the fourth major Canadian marijuana company on a major US exchange.
The Green Organic Dutchman Holdings Ltd. (TSX: TGOD) (OTC: TGODF)
The Green Organic Dutchman is an Ontario-based company that prides itself on its organic cultivation and commitment to growing cannabis without the use of synthetic pesticides.
After going international by entering the European market, The Green Organic Dutchman recently raised $76 million in a bought deal. Now TGOD has also officially entered the massive Latin American market, and recently announced a spin-off transaction for its shareholders.
Canopy Growth Inc. (TSX: WEED) (NYSE: CGC)
Canopy Growth is a world-leading diversified cannabis and hemp company, offering distinct brands and curated cannabis varieties in dried, oil and Softgel capsule forms. When it signed a strategic partnership deal with leading liquor branding company Constellation Brands, Canopy set the cannabis sector on fire, with the prospects of packaged goods and expansions into edibles and beverages.
Aurora Cannabis Inc. (NYSE: ACB) (TSX: ACB)
When it began trading on the New York Stock Exchange in October, Aurora Cannabis became the third major Canadian cannabis producer listed on a major US exchange. Aurora recently announced it was granted approval by the Polish Ministry of Health for its first shipment of medical cannabis to Poland. Earlier this year there was plenty of speculation when Aurora Cannabis’s name was linked to a possible deal with massive bottler Coca-Cola, which has been officially denied since the breaking of the story, but unofficially analyzed.
Disclaimer: Nothing in this article should be considered as personalized financial advice. We are not licensed under securities laws to address your particular financial situation. No communication by our employees to you should be deemed as personalized financial advice. Please consult a licensed financial advisor before making any investment decision. This is a paid advertisement and is neither an offer nor recommendation to buy or sell any security. We hold no investment licenses and are thus neither licensed nor qualified to provide investment advice. The content in this article is not provided to any individual with a view toward their individual circumstances. Baystreet.ca has been paid a fee of twenty thousand dollars by PLUS Products for advertising. Baystreet.ca also holds shares in PLUS Products. This compensation constitutes a conflict of interest as to our ability to remain objective in our communication regarding the profiled company. Because of this conflict, individuals are strongly encouraged to not use this article as the basis for any investment decision. While all information is believed to be reliable, it is not guaranteed by us to be accurate. Individuals should assume that all information contained in this article is not trustworthy unless verified by their own independent research. Also, because events and circumstances frequently do not occur as expected, there will likely be differences between any predictions and actual results. Always consult a licensed investment professional before making any investment decision. Be extremely careful, investing in securities carries a high degree of risk; you may likely lose some or all of the investment.
