WeedMD Inc (CVE:WMD) (OTCMKTS:WDDMF) (FRA:4WE) CFO Keith Merker discusses the merger with Hiku Brands Company Ltd (CNSX:HIKU) (OTCMKTS:DJACF) (FRA:D98) and how their relationship developed. Keith feels that a full supply chain from seed to sale is a competitive advantage and intends to leverage the brand expertise of Hiku.
Ben Smith: Welcome everybody, welcome to the Midas Letter Live. I’m here with WeedMD proposed president, Mr. Keith Merker, and he’s come to our studios to talk about the merger with Haiku brands and other events happening with his company. So welcome, Keith.
Keith Merker: Thanks for having me.
Ben Smith: Okay, right off the bat, you know, all the investors out there are going to want to know about the merger with Hiku Brands. A lot of that information was in the press release, but perhaps if you could further elucidate your thoughts on what the merger brings, and what the strategy is going forward?
Keith Merker: For sure, and thanks. Great question. Obviously, absolutely understand that there’s a lot of questions out there in cyberspace and the real world about what we’re doing at WeedMD, and this new merger that we’ve entered into with Haiku Brands Company, which is terribly exciting.
This is obviously a monumental moment for WeedMD and all of our staff, and also on the other side for the Hiku folks, because what we’re doing is bringing together WeedMD, which has got a very established medical business, very established cultivation, two different locations: one currently operating in Elmer, Ontario, just outside of London, producing about 1,500 kilograms of quality cannabis every year, and the other a greenhouse that’s being retrofit just down the road in Strathroy, Ontario. And this is a massive opportunity. It’s a very flexible, nimble and scalable platform that we’ve built. Structurally, it’s a 100-acre property, there’s 14 acres of built out greenhouse that we’re currently retrofitting five of today.
Ben Smith: Wow.
Keith Merker: It’ll be online by this summer. So we will have crops coming out of there in advance of the rec market.
Ben Smith: Terrific.
Keith Merker: So, very exciting times on the WeedMD side, and of course, on the Hiku side, very different scenario. So this is a group who’s been ahead of the curve from the early going; while the rest of us were scrambling around getting licenses and learning how to grow and doing all those wonderful things, the folks at Hiku were thinking about brands. They were thinking about marketing, they were thinking about retail. And so by bringing the two camps together, what you end up with is the full spectrum. You’ve got the medical business, you’ve got a very large cultivation platform, and then you couple that with a team with an amazing skill set, again, on the marketing side, the branding side; established brands in the marketplace already; and then the retail distribution at the end of the day.
What that does is put together a supply chain that we control from seed all the way to sale at retail, and inevitably, that’s going to be the formula to success in this industry, in our belief.
Ben Smith: Sounds great. Can you go a little bit into how the deal came together? Was it one of those quintessential, you know, you receive a phone call and everything came together quite quickly, or was it a process and were there other suitors involved at some point, if you’re able to go into that? Was it a slow process or a fast process?
Keith Merker: It was a little bit of both, if that makes any sense. We started working with what was then Tokyo Smoke prior to their merger with Doja Cannabis to become obviously Hiku, which is the company that exists today as the parent company. We started dealing with these folks about a year ago. So myself and Bruce Dawson-Scully, our CEO, met with Alan Gertner, who’s currently the CEO of Hiku, and started discussing how we could supply them with product for one of their brands. So essentially, white labeling for what the specific brand is called Van Der Pop, and it’s a female focused brand. We really liked the idea; we felt that the female market was something that the overall cannabis industry had been ignoring, and we aw the opportunity. Partnered up with a group that we thought was doing something we thought was really smart.
That’s how the relationship got started: we rolled out that platform and those sales early this year. Obviously, things evolved; the idea of having a full, comprehensive supply chain in an environment of uncertainty with regulations and in an environment where you want to control the product that ultimately goes into your brands, so that you’re not scrambling around trying to wholesale product and then put the stamp of Van Der Pop or the stamp of Tokyo Smoke on it, instead you’ve got certainty of supply, you know what you’re delivering to your customer, your patient, every time.
So I got a little off-topic, but back to the question: it was a month ago, actually, that we first signed a letter of intent to put this deal together, and we’ve been scrambling at record pace ever since to sign the definitive agreement, which was done this week.
Ben Smith: Terrific. So it sounds like it came together relatively quickly, but you had that established relationship that provided that great base to make it all come together.
Keith Merker: We realized very quickly that the cultures were very much aligned and that, you know, on the personnel side, what’s really interesting is that it’s fully complimentary. Got a great marketing/branding, again all the retail piece, all that, team-wise, is in place, but yet, we have another side: the medical, the scientific, sorry the cultivation…so put it in together, you build out a team.
Ben Smith: Terrific. So now that you have everything together – you know, you’re bringing together different realms in the cannabis space, so you’re bringing all different strategies from the rec side and other sides – what will be the focus going forward? Is it going to be more of a broad-based strategy, where you’re just going to continue doing what each company part has been doing before, and just make that bigger? Or are you going to settle on more of a focus towards, you know, a certain brand or the rec market, for example? What comes next?
Keith Merker: Yeah, that’s a great question. I think it’s fair to say that there’s a fair amount of status quo involved, because of my earlier point – that being that the businesses are fully complimentary and there isn’t much overlap. So we’ll keep growing in Elmer. We’ll keep growing, once we begin growing, in Strathroy shortly. The folks on the other side will continue to roll out the retail stores, obviously with combined forces and efforts and resources to help achieve those goals.
The medical market isn’t going anywhere. We are strong believers that the medical market will be an avenue by which we can maintain our margins over the long term. We believe that the wholesalers who don’t have the means by which they can retail their product either on the medical side or the recreational side, are going to suffer. And in order to mitigate that as a company by putting together the rec program under the retail branding of Hiku and Tokyo Smoke, along with the medical market that we currently have as WeedMD, we’ll be protecting both of those pieces from a margin standpoint over the long term.
Ben Smith: Terrific. It sounds like a great opportunity. Congratulations again for the merger.
Keith Merker: Thanks so much.
Ben Smith: That’s it for now. We’re going to check in with you again in a quarter or two, and we’ll see how the business is developing post-merger.
Keith Merker: Awesome, look forward to it.
Ben Smith: Congratulations.
Keith Merker: Thanks.
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