James West: Hey everybody! Welcome back to Midas Letter Live. Today we have Vic Neufeld, the CEO, founder, co-founder of Aphria Inc. trading on the TSX under the symbol APH
James West: Okay. We’re interested in fielding questions from our audience in an effort to induce engagement and so we have a gentlemen named Ian Hendry who wants to know; it sounds like a good question to me, “What is the output of Aphria combined now outside of Canada?”.
Vic Neufeld: Output as in harvest?
Vic Neufeld: Absolutely zero. But if that’s a segue into a little more clarity on our international strategy…
James West: Let’s go there.
Vic Neufeld: Yeah. I think as we press released a week and a half ago, Lesotho and its abilities of growing both hemp and cannabis outdoor in a little kingdom embedded in the middle of South Africa and moving the process to [00:10:05] through GMP facility there. That will be capable of probably somewhere around 50,000 kilos a year.
That’s a moving target number. If you can understand there’s lots of land and labor is very, very, very cheap. We have the ability to increase or decrease depending on the appetite of certain European countries that allow the importation through and EU GMP compliant facility, processing and laboratory.
Today there is no cultivation producing any harvest but Lesotho’s an example, Italy’s another example. I can tell you that we’re still but very close to making the decision whether it’s Spain or Portugal. There’s a lot of dynamics happening and one thing I think your viewers need to know is, it’s great to send out a press release that talks about license A, B and C or you’ve moved the needle on this joint venture or acquired this particular importer/distributor in a European country; the viewers have to know that journey is far from brining fourth commercialization. There’s a lot of other dominos that need to fall.
So I’m going to sit here and tell you other than the few kilos being sold into Germany through the old system, the few kilos being delivered into Ireland, there is no what I call ” material commercialization” of cannabis in these countries. They are still behind the needle to where Canada is yesterday, let alone today.
James West: Right, right. Interesting. Okay, so then in terms of the cost of cannabis going into this future scenario where you’re talking about the competition on the balance sheet is going to be the key to survival for these companies; what would you say to a company just coming to the market now with an initial phase one 50 000 square feet of grow space where they’ve got a license, they’ve got some money and they’re going to try to find a round hole to drive their square peg into and carve out some space. What are the chances those companies are going to become contenders by opportunistically identifying some, something (laughter) in the whole food chain?
Vic Neufeld: Wow, um there is a place for good quality craft growers. I think they’ll be excluded for round one of SAQ because Quebec has already wired their six LPs. I think Nova Scotia, New Brunswick, the Maritimes; I know where we’re at and I can’t disclose because I haven’t pressed released yet, but I know exactly where our allocations lie. We’re very excited. about what we’re getting.
They’re going to be favoring local. I call it “provinciality”, just like Hydropothecary got a few more kilos than I did in Quebec. There’s a couple really, really good credit growers in New Brunswick for example. Anyways my point is if you’re in a province where they absolutely will demonstrate some favoritism; they have a place.
When it comes to Ontario, from what we’ve been led to believe- the door is open. They’re not limiting the footprint of the store it’s going to be define and linear feet but the amount of brands they’re going to allow in, they have not limited. There are opportunities but it’s not just about getting listed with Ontario or Saskatchewan, Manitoba; which has their own unique go-to-retail strategy with private sector, it’s about how do you get to market? How do you now, it’s great to be the cultivator vertically integrated, you’ve processed, you’ve oil extract, you’ve even created the wire framing for what your rec brand or brands look like. Now how do you get it in?
As you read last week, our contract relationship with Southern Glacier is exactly what forward thinking LPs need to think of. How do you now execute at street level? Do you hire your army of people?
James West: Right.
Vic Neufeld: Or do you seek the services of the experts serving existing liquor control boards across the country?
James West: Yeah.
Vic Neufeld: To that extent I’m saying there are craft guys that they’ve done all the right check boxes, their next hurdles going to be what I’ve just entered into; wow, how do we now get there? How do we have people, feet on the street as they say, into stores to educate, to brand aware. Well I’m suggesting because of who and what we’ve arranged with Southern Glacier that we’re more than welcomed to entertain thoughts of the craft guys. Again, great business model, good growers, integrity of management. They have their idea of who they want to be from a brand perspective.
Listen, I’m going to take the rest of the headache off you. So, call me. We’re open in terms of very selectively two or three of these craft opportunities because we have Southern Glacier and they’re coast to coast
James West: Interesting. So, Southern Glacier, I mean we’ve got your press release up on the screen right now about that. I was curious was that essentially capturing their captive distribution channels for your products into all liquor stores? All cold beer and wine stores depending on what the licensing is across the country?
Vic Neufeld: Southern Glacier brings the advantages of street execution. It’s more than just having economic order quantities and reviewing a distribution centers of inventory they have and forward projections. It’s much deeper than that. It’s going in store. It’s rather than me having an army of educators and trainers, store ambassadors, we are now using their infrastructure and their relationships.
What needs to be understood is that if you’re not listed in the central registry of province A, B or C, you’re never going to be in the shelf of any retailer province wide
James West: Right.
Vic Neufeld: For us to bring this relationship, this expertise and credibility that what they say they’re going to do; they perform just like Aphria, what we say we’re going perform. Together we’re going forward and have we increased the level of receptiveness at province by province by liquor control boards, who have cannabis boards but the governance model; like Ontario for example, LCBO? Absolutely!
What does that mean? Shelf presence, shelf preference of presence. Again, now I want to be eye level, I don’t want to be kick plate, I don’t want to be the dust pan.
James West: Right. (Laughter)
Vic Neufeld: New products, new brands as we introduce going forward; like out of the box. We’ll have three maybe four brands. We haven’t unveiled them all but going forward how do you evolve and have greater brand penetration when vape pens come.
If you have the expertise and their relationships that a) I’ve built inside Aphria but with what Southern Glacier brings to the table; I think we have the ears of the regulators in many provinces to the extent it’s, in Ontario for example again, it’s the LCBO.
James West: Right. Okay so that’s Canada. Now, another recent announcement talks about Columbia and you’ve signed an agreement with a Columbian based company to supply medical cannabis in Columbia. We just saw a Columbian LP go public yesterday- Khiron Life Sciences, they are growers in Columbia as well. Are you going to make the sort of Aphria market place available to these Columbian growers or is it more that you’re selectively partnering with single unique names within those countries and going to drive everything in that country through that name?
Vic Neufeld: Using Columbia as the benchmark on this conversation, Columbia was to us a very logical extension of who and what we’re doing in Argentina already with local partners there; APB. For us Columbia is a huge population. CDB is already like an OTC product and THC infused products are scripted by doctors. There isn’t an existing market place there. People really need to understand this is not two years down the road commercialization; this is real stuff like right now.
What we’ve done and it’s about people. I can tell you both the strength of our [00:19:25] in Leamington and here in Toronto, but in Columbia who’s there; who are the leaders going to make it happen? Yes, we’ve reached out through another intermediary on the right people who are going to manage the cultivation and our cultivation by the way is up in the coffee lands.
James West: Okay.
Vic Neufeld: It’s [00:19:51] sort of concept
James West: (Laughter) Right. Sure.
Vic Neufeld: Many, many reasons for that but I won’t belabor that. In the meantime, it’s allowing the importation of the Aphria brand into Columbia. Once cultivation and they build their infrastructure of oil processing both super critical CO2 and ethanol, do the packaging then in market through clinics and pharmacies. Very similar to the vertically integration of who Canada is medically. For us this is a quick entry using the Aphria brands subject to the supply agreement and working on a licensing agreement. Again, very similar to what we’re doing in Argentina which by the way they’re now talking about in country cultivation.
I’ll be down their shortly and a talking about with the Minister of Agriculture, not the Minister of Health on building out a series of greenhouses for their RND purposes but also how do we now make this commercialization so Argentineans, all CBD derived, this would be our [00:20:53] again at 15% CBD. Just driving the needle on the type of chronic conditions that Argentina Department of Health has accepted in. The first out of the box is epileptic seizure control.
James West: Right. Once again thanks so much for the input. I’m sure our audience really appreciates it and I certainly do too.
Vic Neufeld: Great, thanks James.
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