Aphria Inc (CVE:APH) CEO Vic Neufeld on Cannabis Ecosystem Expansion

Aphria Inc (CVE:APH) (OTCMKTS:APHQF) CEO Vic Neufeld joins us for a wide-ranging discussion on his company’s expanding cannabis universe horizons through investments in Tokyo Smoke, Copperstate Farms, and Canabo Medical Inc.(CVE:CMM).

Listen to the podcast interview with Vic Neufeld:

 

Transcript:

James West:    Vic, thanks for joining us today.

Vic Neufeld:   Great to be with you, James.

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James West:    Vic, there’s been a number of developments in Aphria since we’ve last chatted. Why don’t you give us an overview of what’s happened since the beginning of 2017?

Vic Neufeld:   Yeah. So perhaps a bit of background for clarity purposes in terms of what we have, what we just built, and what we’re about to build. So, for clarification, today we grow in about 45,000 feet of greenhouse in Leamington, Ontario, serving a harvest of about 2,700 kilos annually, and we have about 15,000 feet of infrastructure.

What we’ve now built and completed, and we’ve made a submission to Health Canada for a site inspection approval, is another 55,000 feet of greenhouse and another 25,000 feet of infrastructure. That will bring us to approximately 100,000 feet of greenhouse growing, and about 40,000 feet of infrastructure. That’s capable of harvesting approximately 7,000 kilos annually.

Already Board-approved and also underway, Mother Nature with winter has kind of forced us to press the Pause button for a couple of months, but very shortly, we’ll be able to pick up shovel where we left off with what we call Part 3. Part 3 now, James, will add another 200,000 feet of greenhouse, and another 40,000 feet of infrastructure. At that point we’ll be able to harvest annually about 21,000 kilos of cannabis.

James West:    Wow.

Vic Neufeld:   And all of this, James, all of what I just said, is reflective of our medical platforms, all of the various clinics and aggregators that we have signed up and continue to sign, and all of the patients that come with it. So we’re very, very excited. We’re really hoping Health Canada takes special exemption in terms of their timeliness, to come to approve our Part 2 and eventually, our Part 3.

James West:    So, but parallel to all this, Vic, you’re also expanding sort of horizontally into other areas. You bought 5 percent of this Operation Copperstate Farms in Arizona; you’ve participated in a fund that strikes me as more of a private equity platform. Now, is that something that – is this sort of part of the Aphria vision, is to expand laterally across the entire cannabis sort of ecosystem?

Vic Neufeld:   That’s a very great observation, James.

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Vic Neufeld:   So, a bit of clarity in terms of the various vertical expansions, and let me start with Copperstate, which is a greenhouse campus of 40 acres in Snowflake, Arizona. Our partners, together with us, proceeded with the acquisition at less than $0.25 on the dollar in terms of replacement costs; it used to grow produce, mini-cukes and tomatoes for southwest US of A, but the Mexican vegetable produce costs were just too low for them to survive.

So we made a very strategic investment at a low CapEx, and together with our partners, moved forward on bringing forward the cultivation of medical cannabis to the state of Arizona. We made a cash investment as well as what we call sweat equity, where we did an IP transfer, intellectual property, the knowledge that we have gained over the last four years of the engineering and design of greenhouses to grow medical cannabis, as well as the growing techniques that we have kind of manicured and really honed over the last four years in Leamington.

So today, we have a 15 percent position in Copperstate, and just to kind of reflect what that means, the state of Arizona today has about 100,000 patients who are annually licensed by the Department of Health, State of Arizona, and it is expected to grow. The other part of November 2016 elections, they voted down the concept of recreational, and while that may be viewed as a negative, quite conversely, that is just going to mean more and more people will go the medical route, which is exactly what favour us.

Copperstate also has acquired a dispensary, and we’ve got our name in for two more dispensaries in the state of Arizona, and in that state, a couple things: one, you need a dispensary to cultivate, and once you have that, you can actually sell wholesale any excess supply to other dispensaries in the state of Arizona.

Secondly, in Arizona, there’s no canopy size restriction, meaning your size of operation is not restricted to a specific footprint like in Oregon and Washington and California, and recently, but now changed, in the state of Nevada. They regulated the size of your growing operations to 10,000 or 20,000 feet, depending on the state. In Arizona, there is no such cap.

So for us, 40 acres, they just completed the retrofit of 8 acres under glass in the greenhouse campus of 40 acres, and we also now have re-engineered the infrastructure to allow for the regulations to be met in terms of processing, storage, oil extraction. So for us, it was a very, very strategic and logical expansion because they, being our partners, reached out to us over a year ago knowing that greenhouse is the only way to grow cannabis, whether medical today, or rec tomorrow, because of the cost structures.

So that was, very, very excited about that one.

You then talked about other opportunities. We made an investment in what you otherwise would call a venture capital company, private equity kind of, and the reason we did that, we liked the management behind it. they were early investors in Aphria, still remain investors in Aphria, but they really latched on to the concept of, there’s a lot of accessories, I call it peripheral investments, to be made outside of a core LP type of business model. And some of these opportunities were going to de-focus me and my management team. So for us, this was a great one, because they had the DNA of cannabis, both medical and recreational one day, and they really, really understood what could happen under recreational.

So their vision is bang-on Aphria, except I didn’t have, I’m going to call it the horses and all of the gray matter to poke around and investigate the due diligence on a number of opportunities.

James West:    Okay. And then I saw a press release today that also included Aphria’s name in it, surrounding the closing of a financing for Tokyo Smoke. So that implies you’re branching out into a retail sort of component that doesn’t really fit into any other aspect of what Aphria has been about, at least as far as I perceive it.

Vic Neufeld:   Boy, you’re very quick on that social media platform, James!

James West:    I live on it.

Vic Neufeld:   Okay, so Tokyo Smoke: we actually made this strategic investment about six months ago, and it was a very quick slam dunk in terms of our decision. So Tokyo Smoke, they deal with certain consumers today in their business model of a very upscale coffee shop and a gathering place, and they also sell various accessories and paraphernalia around the cannabis industry. So they have a clientele that otherwise is defined very difficult for Aphria to engage in conversation; it’s just not in the mindset of an Aphria patient for medical purposes.

However, they are very much supporters of cannabis in various ways. So what we have done, as long as their consumer, which turns into our patient, complies with all of the ACMPR regulations and rules, in other words doctor, script, filling out all of the patient profile, doctor profile etcetera, they are now reaching out on our behalf to serve up a medical platform. So even though they’re not counselors, a typical CanvasRx platform or a Natural Health Science out in Calgary or Cannabinoid clinics in Toronto, they are still a means wherein we can reach out and speak to their customers, which become our patients, always about complying under ACMPR.

So that means their customers would register with Aphria, with all of the other medical credentials required. That’s Step 1.

Let me also be very clear: that sort of consumer, and the sort of image and business model of Tokyo Smoke, one day, when recreational comes, one doesn’t know how the rules are going to be rolled out, what are the uniquenesses [sic] and the nuances. In Ontario, for example, what will be the recreational distribution point? We don’t know. But we know that the Tokyo Smoke consumer is someone that we absolutely want to speak to.

James West:    Interesting. So boy, that’s, you’re quite the empire builder, I’ve noticed, Vic. You seem to be like a force unto yourself out there, and that’s okay. So what do you see happening for Aphria in terms of, you know, there’s been a sort of change in the weather for German medical marijuana users in that the government has started to agree to cover it on health insurance. Does that have any effect for Aphria?

Vic Neufeld:   Absolutely. So outside of North America, because I’ve already spoken about Arizona, but I could very quickly and easily talk about other initiatives or opportunities in Connecticut, in Illinois, states where it is just medical, but I’ll leave that for future press releases.

James West:    Sure.

Vic Neufeld:   Outside of North America, yeah. We’ve already entered into an alliance, a partnership, with a science play in Australia. So what we do, when we look at branching out and really expanding the Aphria story, we want to ensure that the geographic region, the country and their health authorities, are very much in line with Health Canada. I mean, I’ve heard of countries like South Africa and Croatia and all these other countries, but for the Aphria story to really resonate and provide accretiveness [sic] to our shareholders, we first look at the government and where their mind’s at in terms of medical cannabis.

So Germany is absolutely most frequently coming on our radar, and we are engaged in dialogue with two different organizations. Haven’t gotten to anything really formal, letter of intent, but really wanting to know more. But what I can tell you in terms of a commercial transaction is Australia, where the TGA, which is the Therapeutic Goods Authority, they are equivalent to our Health Canada, we’ve already had a commercial sale of a very specific, high-CBD oil extraction and formulated to their requirements for their science studies.

So this is becoming a science play specifically dealing with epileptic seizures, as well as certain pain control treatments using, in Aphria’s case, Treasure Island, which is our highest CBD – I think it’s 15 through 17 percent CBD, which is extremely potent compared to the marketplace availability in Canada.

So here’s Australia reaching out to us, not so much from a low-cost reducer status, because under new drug development, the cost is really not a driver, but more of management and our quality and our DNA that the Aphria quality team has. Again, a lot of my guys at Aphria, and gals, I brought over from Jamieson Vitamin days, so they’re very much understanding and breathe quality. And this resonated and became a very important part to our partners called MedLab in Australia.

So yes, back to your first question, overarching question, geographically we’ll consider many things, but we also don’t want to bite off more than we can chew. So, would Germany be on the list? Absolutely. As is Australia. But I also do not want to de-emphasize certain states in the US that are, from a medical perspective, and where we’ve got committed partners that really understand what Aphria is all about.

James West:    Yeah. Wow. Okay, so then, in terms of the US now, so you made an investment in the US. We’ve got the Attorney General potentially is Jeff Sessions, who’s definitely against the idea of recreational marijuana, has threatened to rescind the Cole memo, which would complicate life for all the legal states. Do you see him as a threat to what you’re trying to accomplish in the US, and is he possibly an opportunity for what you’re doing in Canada?

Vic Neufeld:   Well first of all, the opportunity Canada into the US, is not going to happen for many years; cross-border commercial transaction is really, really not in the cards, and would violate or jeopardize my licensed producer status. But back to Jeff Sessions: I think his position is well documented for sure, but I think his position is, from a recreational perspective, not under my watch. That’s kind of what he’s saying, and I think Trump will just go along with that.

But he cannot turn back the hands of time when it comes to medical. There’s just too much overpowering patient evidence and more and more science coming to the table that supports medical cannabis. So for our reaches into certain states in the US, I said it, I’ll just re-emphasize: we want to make sure that the culture and the state health authorities are there in terms of a mindset and vision in terms of medical cannabis. We’re not really going into the States where recreational one day will come alive: no. We’re not in Oregon; we’ve looked at it and passed. Washington, looked at it and passed. California, Nevada, no, no. we want to stay medical when it comes to the reaches into certain US states.

And that’s why I said Illinois, I say Connecticut, and most recently, Florida. And Florida, given its climate and environmental conditions, is absolutely ideal for my greenhouse technology.

James West:    Okay, great. All right, Vic, thank you so much for your time today.

Vic Neufeld:   Great, thank you too.

James West:    Talk to you soon. Bye for now.

Vic Neufeld:   Bye, James.

 

James West

Editor and Publisher

James West founded Midas Letter in 2008 and has since been covering the best of Canadian and US small cap companies. He covers global economics, monetary policy, geopolitical evolution, political corruption, commodities, cannabis and cryptocurrencies. As an active market participant, James is not a journalist and is invariably discussing markets...
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