VIDEO: Newstrike Brands Ltd (CVE:HIP) Rebranding and Looking Up

MidasLetter Live
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Newstrike Brands Ltd (CVE:HIP) (OTCMKTS:NWKRF) (FRA:0N8) CEO Jay Wilgar discusses the company’s rebranding strategies after the CanniMed Therapeutics Inc collapsed transaction; where CanniMed were eventually acquired by Aurora Cannabis Inc (TSE:ACB) (OTCMKTS:ACBFF) (FRA:21P). The CEO highlights their wholly-owned subsidiary Up Cannabis and their two licensed facilities. Newstrike are well prepared for the upcoming recreational Canadian market and have stockpiled several thousand kilograms of products for the October 17th legalization date.

Transcript:

James West:    Hey, welcome back to Midas Letter Live. My guest this segment is Jay Wilgar. He’s the CEO of Newstrike, trading on the TSX Venture under the symbol HIP. Jay, thanks for joining me.

Jay Wilgar:    Thank you, James.

James West:    Jay, Newstrike has had an amazing run through the markets; almost married to CanniMed, Aurora steps in and steals the wife, Newstrike is out in the wind. Giant treasury, pivot, tilt, move, regroup…tell me what’s going on with Newstrike now.

Jay Wilgar:    Well, yeah, I mean, first of all, thanks for having me. It has been a fascinating year for us, as you can imagine. You know, we started off trading as a public company last year; certainly after we announced our business partnership with the Tragically Hip, which was very exciting in itself. And then very quickly we started looking at the potential transaction with CanniMed, and really at the time made a lot of sense for us as a combination – CanniMed, of course, being one of the most established cannabis companies in Canada. And us with a very brand-focused, go to market strategy really in the recreational market.

You know, I certainly wasn’t expecting to get thrown in the middle of a hostile takeover situation six months in, but that being said, you know, I think we actually came through that in a much stronger way than I think the market thought we would. You know, we got a break fee that was pretty significant; we had raised $90 million within three days of the transaction not happening, and then you may be aware, we just raised another $455 million in total. So we’re certainly sitting on a very strong balance sheet right now, and our operations are very strong. So we’re executing on exactly what we were doing a year ago, just having gone through the turmoil of that situation.

James West:    Right, yeah, okay. So you’ve changed the name of the company to Newstrike Brands. Is that – from that I’m assuming we can read that you’re going to be focused on the consumer packaged brands space in the cannabis space. You acquired a ACMPR grower, if I’m not mistaken?

Jay Wilgar:    No, an application we have acquired.

James West:    Oh, okay, late-stage application?

Jay Wilgar:    That’s correct.

James West:    Up Cannabis?

Jay Wilgar:    Well, so yes. So Newstrike, the name Newstrike, really came about through the RTO transaction that we had done. And hence the name Resources. So the idea of moving it now to Newstrike Brands with Up, was really about the fact that we are a brand-focused company right now. We certainly have an eye to international markets, there’s no question about that. But what we realized early on was that there are, you know, quite a few players here in the Canadian marketplace; a lot of them really focused on the medical side of things, and if you look at a lot of the names of companies and, call it, the brands that were out there, we saw a really big opportunity to say, let’s create a brand that stands out, that’s simple to Canadians, that is catchy, that we can really play around with the branding side of this – understanding, of course, that the regulations that we work with are very controlled. And we get that.

So we’re working closely with Health Canada on those things, closely with our partners, The Tragically Hip, and others, in creating recognizable brands for Canadians in the rec market.

James West:    Okay, so then, is the relationship with The Hip still very much a part of what you’re about to do?

Jay Wilgar:    It is, yeah. I mean, last week you may have seen we hosted a really interesting event called The New Farm, where The Tragically Hip were present, of course, and they’ve been a great partner for us from Day One. And I always talked about the fact, if you think about people that understand Canada, and understand Canadians, you’d be hard-pressed to find a group of guys that has spent more time travelling across this country and talking to people and understanding, you know, what Canadians are really all about. So when we integrate them into our overall plan, they’re very active with us, they really are. I mean, the idea of that partnership was a business partnership; it was not a promotional-type thing.

And you know, I think you see that with them on a, the way we interact with them and work with them, and they’re excited about it, too. I mean, they talk very openly about their excitement. So it’s also a lot of fun.

James West:    Amazing. So how soon till Up Cannabis is a licensed grower, then, do you think?

Jay Wilgar:    So we are fully licensed.

James West:    Oh, you are? Okay.

Jay Wilgar:    Yeah, we have been fully licensed. So we’ve been actually growing now for 18 months.

James West:    Oh, okay.

Jay Wilgar:    And we have two facilities: our Brantford facility is relatively small, indoor, almost medical-style facility that we built starting five years ago, and that site has been licensed now since December of 2016, so we’ve been producing there, actually, for a year and a half, and most of our production there is actually stockpiled for the recreational market. So unlike most producers, we haven’t gone out and created a medical side, we’ve really said, okay, let’s focus our products and our strains on the recreational market. So we’ve got several thousand kilograms in vaults right now, and then our second facility that we bought in Niagara last July, one of the most high-tech greenhouse facilities in North America. And it used to actually grow orchids.

And so we are converting, or we’ve converted that now, into a very large-scale cannabis producing facility that is also licensed. So we have plants in there right now, and at its peak, it will produce around 30,000, depending on the strain, 30,000 or plus kilograms of cannabis per year.

James West:    Wow.

Jay Wilgar:    And then within that facility, we also are expanding production capacity for oils and derivative products that we see as being a big part of our market certainly going forward. You know, we talk about vape pens or you talk about other edible products, we have a strategy to go very hard at that market as well.

James West:    Okay, great. Well, so, that’s interesting; you’re one of the only companies I’ve ever talked to who said no, we’re not even participating in the medical business, we’re going straight to recreational. Does that sort of impact the way you grow or the strains you grow or the mix of sort of output you target?

Jay Wilgar:    Funny enough, no. I mean, the products that we actually grow – and I think we’ve taken a different tack than a lot of the licensed producers on a few fronts. So the one thing we don’t do, and a lot of companies talk about ‘well, we’ve got 35 strains’. We look at this and say, okay, that’s a confusing number for a consumer. Canadians really actually don’t know as much about cannabis as you’d think, and even people that have been using it for years are not necessarily that educated on, you know, the multiple types of strains that exist out there.

So we looked at it and said, okay, what strains are selling in North America really well? And the difference between a medicinal strain and a non-medicinal strain, when you grow it at the level we’re required to grow it at, which is Health Canada standard, which is very, very high – there’s really no difference. I mean, we could sell our current products as medicinal products; we have one strain that is a very, very high THC strain that would be a perfect medicinal product, and we also grow one that is very, very high in CBD, which is generally considered the more medicinal of the two.

James West:    Right.

Jay Wilgar:    So no, our five strains that we’re really focused on could be used for either, but we also decided just focus on five. When you think about a beer company, it would be unusual if you had a beer company that had 45 different beers to choose from. And so the view for us is from the get-go, let’s go to the market with things that resonate with consumers and that they can understand. And keep it a little bit simple. So that’s really been the strategy.

James West:    Okay, wow. So I mean, the one thing that’s always impressed me about Newstrike is you guys are able to raise capital in the face of what would otherwise, for other companies, be a game-wrecker, never mind changer. So every bad thing that happens to you, you just turn around and raise more money. So to me that’s like, well there’s the example of how a late-stage entrant into the game can survive; if you’ve got access to capital, you can pivot and turn and regroup and rebrand many times. And so –

Jay Wilgar:    Well, and to that point, you know, when you look at the fact we’ve got our two sites, which we own; we’ve got over $120 million in cash in the bank, we’ve got significant inventory, several thousand kilograms that we’re now looking to get into the recreational market…so I think we’re actually extremely well-positioned. And you know, certainly, I know the question that people always ask is, well, what’s going on with your stock price, what’s going on with this? Our focus is really executing on this business plan, and I think when you look at the fundamentals that we’re building within Newstrike, I think that they remain extremely strong. To your point, you know, we are pretty tight, but we are also capable of pivoting very quickly, and have the ability to do so, certainly, financially.

James West:    Right. So it’s game on for you guys, essentially, on October 17th? You’ve got a deal with Alberta, and I’m assuming that you’re working on deals with other outlets and strategies?

Jay Wilgar:    We certainly are, we certainly are, yeah.

James West:    Okay. And then internationally, have you got a footprint yet?

Jay Wilgar:    So internationally, we’re working on an international strategy right now, and again, one of the things that we decided to focus on was, if we tried to be all things to everybody, and I think this is something you’re going to see in the marketplace is, the one thing unique with cannabis is the limit that you have on how much you can produce and how fast you can produce that product. So we knew that there was definitely an eye to the international market, and there still is. But we also realized that if we tried to go down that road immediately, then we may have trouble servicing the customer base that we’re trying to create here in Canada.

The other thing that I think is interesting on the international market is, it’s really evolving. And Canada is certainly light-years ahead of all the other markets right now, so I don’t think we’ve missed the boat in any way on the international market. We certainly have a team working on that right now and looking at what markets can we get into, because there are a lot of them, and they’re evolving, and they’re certainly all looking to Canada for potential supply, at least in the beginning. Because I think ultimately, most international markets will want to get the benefit of producing domestically as well.

James West:    You bet.

Jay Wilgar:    But we certainly have a, of course we have a strong eye to what’s happening internationally, and every intention of entering that market as well.

James West:    Sure. Cashed up as you are, I guess you’re ready to execute on opportunities as they come along. Have you looked at the US at all?

Jay Wilgar:    I mean, the US market, I think, as we all know, is difficult, and certainly the regulations as they exist, certainly with the TSX and as a Canadian publicly traded company, are very clear. I think it would be irresponsible if we didn’t track and know what is going on in the US at all times, which we do; we keep a very, very close eye on what’s happening there. But again, we have to make sure that we stay within the regulations of the Exchange, and then the regulations of what we’re dealing with with Health Canada. Obviously a huge market, and it is a very confusing market though, as well. You know, you have states that have chosen to legalize, you’ve got a Federal policy that is completely opposite to what’s happening. So I would say it’s, I mean, it’s an attractive market just because of volume; but at the same time a confusing market, and one that we are certainly watching. But our strategy really right now is, let’s get a strong foothold within the, you know, $7 billion Canadian market and also continue to look at opportunities elsewhere.

James West:    You bet. All right, Jay, we’re going to leave it there. We’ll come back to you in a quarter’s time and see how you’re doing. Thanks for coming in today.

Jay Wilgar:    Fantastic. Thank you very much for having me.

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