VIDEO: How Leviathan Cannabis Group Inc (CNSX:EPIC) Differentiates from the Pack

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Midas Letter
VIDEO: How Leviathan Cannabis Group Inc (CNSX:EPIC) Differentiates from the Pack

Leviathan Cannabis Group Inc (CNSX:EPIC) (OTCMKTS:LVCNF) CEO Martin Doane discusses how the company lives up to their EPIC ticker and name. He outlines Leviathan Cannabis’ three differentiators in the Canadian cannabis marketplace and future European plays. For starters, their RTO of Canada’s only cannabis-focused branding and marketing agency; Jekyll and Hyde. Second, their low-cost operations in Niagara with the ability to grow dried flower at approximately $0.70 a gram. Lastly, they are using their acquired pharmacy as their institutional dispensary channel.


James West:    My guest here, my guest’s name is Martin J. Doane, and he is the CEO and Director of Leviathan Cannabis Group, which trades on the CSE under the symbol EPIC. I love it! Leviathan, what a name!

Martin Doane:  It’s the best, what would you like to know?

[stock_chart symbol=”EPIC:CNX” align=”left” range=”5D”]

James West:    I mean, when you say ‘Leviathan’, that, to me, implies like so much scale. Is that sort of part of the thinking behind your company?

Martin Doane:  That was definitely one of the inspirations. I mean, the Leviathan is a mythic sea creature, and very large in scale, and a dominator by nature. It’s also the title of a famous tract on political economy by Thomas Hobbes, but –

James West:    That’s right, that’s where I was thinking. Have you seen the Russian film called Leviathan?

Martin Doane:  I have not.

James West:    Oh, well, you’re going to have to see that now that you’re running the company.

Martin Doane:  Now I want to see it.

James West:    Yeah, okay, so tell me: where is Leviathan located, what’s the size of the grow, what’s the sort of the – what’s the main business model?

Martin Doane:  So Leviathan is really a vertical aspiring operation with a number of assets and a number of opportunities. The first and major asset is in Pelham, Ontario, which is the centre of the Niagara Region.

James West:    Pelham? That’s where I grew up.

Martin Doane:  Well, there you go. So it’s right on Foss Road; there are two other LPs on the same road. We have a 30-acre property that was formerly a cucumber greenhouse, and we are building it out to do up to 150,000 kilograms a year of dried flower.

James West:    150,000 kilograms?

Martin Doane:  That’s the plan. It’ll be 1 million square feet.

James West:    Wow.

Martin Doane:  Phase I, which we’re currently building out, and anticipate having ready in the latter part of the fall, will be 20,000 kilograms of production across 165,000 square feet.

James West:    That sounds pretty cool. When do you sort of reach that level of production?

Martin Doane:  So we would reach capacity in Phase I in or around the spring of 2019.

James West:    Okay, so great. The entire market is now, you know, loaded with all of these different companies and everything, and so as a relative latecomer to the game, what do you think you’re going to have to do to sort of elbow aside some market share? Like, we just read a list during our news segment of the 13 companies who have been selected to provide cannabis through the Alberta program at the behest of the government of Alberta; so, latecomers like Leviathan, what’s your game plan for market share?

Martin Doane:  So, look: we have certain, I think, advantages, and our game plan is highly differentiated. We started our life on the CSE on January 23rd, I think, trading at $0.12, $0.15 on an RTO vending in Canada’s only cannabis-focused branding and marketing agency, called Jekyll and Hyde, the first major differentiator. Our group, including the founders of Jekyll and Hyde, have worked throughout North America for third-party clients, helping build their brands, developing their marketing and sales strategies, and that’s now an in-house asset that we take advantage of. We both use the agency on a proprietary basis for our own assets, and we selectively work with Canadian and American companies, helping build their brands and do their marketing.

James West:    Thus all the clever names.

Martin Doane:  Exactly, and that’s just the beginning.

James West:    Very catchy names, yeah!

Martin Doane:  So that’s number one. Number two, the operation in the Niagara Region is going to be a very low-cost operation, so we have an advantage there. We think we’ll be able to grow dried flower at somewhere in the order or $0.70 a gram, so even if we sell at wholesale for $3.50, the delta is pretty good. But at the same time, we’re probably going to take 20 to 25 percent of the production and utilize it in Leviathan branded products that will be architected by Jekyll and Hyde.

Thirdly, we just announced the acquisition of a pharmacy that has a pre-1954 charter called Pulse Rx. And Pulse Rx does an institutional pharmacy business right now; it’s a channel business, they currently write prescriptions for old age homes, nursing homes, and soon, prisons. And those institutional channels are prime candidates for cannabis therapies. I mean, cannabis, and CBD in particular, have some wonderful medicinal qualities for helping Alzheimer’s and aging and opiate addiction and everything else, and thus those institutional channels are very well directed.

We’re also going to utilize that platform, which has just applied for an LD, licensed dealer, as well, to use it as our dispensary channel, to have our Canadian distribution through this whole Pulse Rx platform across Canada.

So those are sort of the three legs of the stool right now in Canada. We just opened an office in Europe, just outside of Milan. I can tell you our funnel in Europe is very large, and I expect in due course we will have European assets that fill in certain gaps for us there. And we’re also actively sourcing deals in the United States, and I can tell you from an M&A perspective, we have a different approach to the market than most other LPs or cannabis companies. We don’t participate in auctions; we have a trapline built up over the last five years of unique source deals.

We find needles in the haystack, and we don’t overbid. You know, you won’t see us bidding $50 million for a license in Florida or, you know, the last great thing in Boston because they’re going rec in the next two weeks and everybody wants to jump in. we’re patient, we buy assets for good prices, we build them organically, and we utilize a strong capital markets team and currency to rationalize and optimize the entire program.

James West:    Wow, that sounds like, I’ve got to say, I sit here and listen to a lot of stories, and I’m going to say that you’re the first late-stage latecomer to the market that I’m actually really interested in throwing some money in, because that sounds like such a rational approach. The idea of, you know, distributing branded products through your own channels in Canada sort of suggests to me that you believe that the liquor agency model is not going to be the only way that people are able to access their cannabis, and I tend to agree with you.

Martin Doane:  Yeah, look. I mean, you know, we had the Liberal government and their idea in Ontario, and I think most people in the cannabis space other than the top 10 LPs who think that that’s manna from heaven, because they have pricing power and scale, is not the way we’re going to end up. And I think the Ford government is probably going to push even Ontario towards a much more free market approach. We’re going to have all sorts of strata of distribution, dispensaries, small pharmacies, large pharmacies. Online, I think, is going to be opened up over the next five years.

We want to control our own destiny, and thus we will acquire our own in-house distribution, and our products will be on the top shelves of those outlets. But at the same time, we do feel that the trend is going to be more in alignment with where the big markets in the US are going.

James West:    Interesting.

Martin Doane:  You know, we’re making that bet.

James West:    So, okay. So you’re not focused on just the US or just Canada, you’re ready for all things. You’re in Europe already; Milan happens to be the location of my favourite clothier, which is Etro, and so I’ll be coming to visit you there for sure.

Martin Doane:  Very nice.

James West:    So then, now, you debuted on the CSE 25 index. So what exactly does that mean?

Martin Doane:  So look, the CSE 25 index is a combination of the companies with a certain level of market cap; that’s a threshold. But at the same time, it’s a reflection of, I think, the judgment of the CSE executives about which companies are both the current crème de la crème and the up-and-comers, and it’s a mixture, it’s a basket. And, you know, indexes are built off the CSE 25, and we were recently put in. you know, our stock chart has been, you know, quite spectacular over the past five, six months – maybe that had something to do with it. They don’t consult with the company, they just tell you you’re going on.

James West:    You’re it. You’ve been selected. Okay, great. You announced that you completed the acquisition of Woodstock Biomed.

Martin Doane:  Yeah.

James West:    And what is the significance of that transaction?

Martin Doane:  So that’s the Pelham transaction.

James West:    Oh, okay.

Martin Doane:  And the fellow, Renny Bidinot, had put that application together and had assembled the land. We helped them buy the land even before we acquired the company and, you know, we completed that acquisition essentially on a share basis.

James West:    Okay. Would you be interested in looking at a 122,000 square foot GMP pharma plant in Fort Erie in the free trade zone?

Martin Doane:  Yes, we would.

James West:    Okay, we’ll continue that conversation afterwards. But for now, so what are sort of the milestones that you’re going to shoot for in the rest of 2018 and into 2019 that you think are going to be key to building shareholder value for your shareholders?

Martin Doane:  So look, I mean, you can’t foretell the future. I can only tell you what my game plan is as the CEO, and the game plan right now is to rebrand Pulse Rx, to inject capital into that platform, both to expand the conventional pharmacy business into larger institutional channels, set the stage for the cannabis therapies going on through not just flower, of course, but you know, manufactured products, whether they’re edibles or vaping or different oil products. We’re going to build out the Woodstock plant, put that into production at the end of the fall, start building Phase II. We’re going to be aggressive in looking in Canada at other assets, potentially Fort Erie now, and in the US and Europe I’m pretty committed to closing two or three major acquisitions before the end of the year to round out, really, our distribution and our cultivation capabilities.

James West:    Wow. I’m really kind of impressed. I don’t hear too many people come in here with such a clear idea of what they’re going to do, so it’s very refreshing. So how much capital have you raised to date?

Martin Doane:  So we’re just completing a $7.5 million round with a call-able warrant that will bring another $15 million into the coffers by 120 days after June 30th. So, end of October. We’ve already crossed the threshold; the round was price protected, it was announced a few weeks ago, it’s being done at $0.50. The stock is trading, you know, $1.60, $1.70 right now. It wasn’t hard to get the round done, obviously. Do you want to subscribe? We close tomorrow.

James West:    [laughter] Cut! No, just kidding.

Martin Doane:  Your advice is objective, I realize that.

James West:    Right!

Martin Doane:  And, you know, we expect that around a couple of the other acquisitions, we could very well do a larger round. One of our differentiators is that, as an in-house group, management and the main shareholders always take down a minimum of 50 percent of each round ourselves.

James West:    Wow.

Martin Doane:  So, you know, we’re leery of distributing too much stock to people who don’t have a long-term game plan, and, you know, we’re five-year program people. And so, when we place the stock, it’s very selective. This particular round, you know, we could have over-subscribed at 500 percent. We were very selective about who we allowed into the round. I think we took down as principals over 65 percent of the round ourselves. And so we’ve done that consistently.

James West:    Wow. So that’s really interesting. I’m really impressed, and I mean, we could go on for hours and hours, but I’m going to leave it there for now because –

Martin Doane:  Sure, I can come back.

James West:    Well, we’re going to have you back regularly.

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