VIDEO: Jetty Extracts First-step in Cannex (CNSX:CNNX) Multi-State Strategy

MidasLetter Live
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Jetty Extracts Co-founder and CEO Ron Gershoni discusses Cannex Capital Holdings Inc (CNSX:CNNX) (OTCMKTS:CNXXF) recent acquisition and becoming the first-step in Cannex’s multi-state strategy. Jetty Extracts are one of the pioneers in cannabis isolates and concentrates in California, working in all facets of the cannabis market from growing to extraction to distribution of marijuana products. Their established history working with crafted products in California provides Cannex with an expanding brand exposure across the U.S.

Transcript:

James West:             Hey, welcome back to Midas Letter Live. My guest today is Ron Gershoni, the co-founder and CEO of Jetty Extracts, a subsidiary of Cannex Capital when it closes. When that’ll be? At some point in the near future, keep watching to find out. Ron thanks for joining me today – first time on the show. I’m excited, are you excited?

Ron Gershoni:          Absolutely, glad to be here.

James West:          I’ll try not to let you down. You didn’t bring any Jetty Extracts with you did you?

Ron Gershoni:          Unfortunately, I couldn’t bring them over the border but you can come visit us. It’s now legal in California and we’ll be happy to get you set up.

James West:          I will bring my appetite. So tell me about Jetty – how did you get started and how did you get into the extracts game?

Ron Gershoni:          We founded Jetty in 2013. Myself, along with 2 friends. My father became a medical cannabis patient to help him sleep due to severe back pain, and at the time, a friend of mine who was a cultivator pulled out a vape can and said: hey, we can make these. That was sort of the genesis of how we started. My background is in CPG, and I believed at that time – and I still believe today – that the biggest and most scalable opportunities in the cannabis space will be brands, and that the biggest brands will be born in California.

James West:         Ah, ok. So tell me about the cannabis market in California. Outside of California, we get a lot of contradictory information and I believe that’s probably at least in part a result of the fact that within the state, county by county, the rules are different. There are different licensing categories and different levels of testing required of the final product. What is it like to operate in California and are you operating where you are because it’s simple and you’ve got it figured out?

Ron Gershoni:          I would say nothing in California is simple. We are operating in Oakland, which is a fairly friendly municipality and the state is extremely fragmented. We have moved several times until we’ve settled into our current manufacturing and distribution facility. The state legalized cannabis, which went into effect January 1st of this year, and that’s for adult use as well as medical use. And it’s been kind of a chaotic year but we’ve been preparing for this for quite some time and have pretty much all of our packaging and our product and our distribution system dialed, so we’re really excited for what we see as a really big opportunity to introduce Jetty products to new consumers that were not previously part of the market. We’ve been selling since we started and we make concentrates. We don’t cultivate and we don’t retail. We bring in the plant material and then we do extractions processes on that material, and formulate different sorts of oils and waxes. Then we usually package those into vape cartridges. Vape cartridges right now in the California market and many legal markets make up 50% or more of the total market share.

James West:        What’s the highest potency I could buy in a Jetty vape format?

Ron Gershoni:          Right now it’s probably close to 90%.

James West:        Oh ok!! That is at least 3 times too potent for me! I’m like a one-hit kind of guy, I’m good for 2 hours. So I guess Canadians, we have no history of pre-packaged vapes that have ever been legal. So there is a whole swath of Canadians who will be like: what?! 90%, that’s just not happening. But that’s not the only way to acquire or consume cannabis in a vape. The great thing about a vape is that you can get it super mild, you can get great combinations to service whatever combination it is you’re targeting, right?

Ron Gershoni:          We’re in the process of a brand refresh to modernize and be a more welcoming presence to a lot of the new consumers, and we are introducing some new products that will be lower potency, specifically for that reason. In California, prior to January, our best selling products were always the highest THC per dollar. And we see that changing as newer consumers want to make sure that they’re not getting too high. So micro-dosing has become a much bigger part of the market, and we’re introducing products specifically at lower doses to make you happy when you come visit.

James West:             Right, that’s great. I went through school and when we were kids in high school it was all about getting as high as possible, all the time, as much as possible. But we weren’t faced with an even, dried flower. I doubt we ever smoked at 30% THC, and I believe that that potency would’ve originated in California because I’m talking about back in the 70s. We used to get it from Mexico and Colombia in the 80s. That’s when the whole boom started happening out of California, triggering the double-down on law enforcement and actually catalyzing the BC underground drug scene. I feel like that especially in Vancouver, where I lived for 26 years, it feels like we’re related to California. But I’ve never been exposed to anything growing or part of that scene in California. So I’m excited to come down and shoot you guys and your operations with the camera crew.

Ron Gershoni:          The purity and potency have increased substantially since the days you’re speaking down. I think when you come down, or anyone comes down from any other market comes to California, they see on the shelves a very sophisticated, advanced market. The lower barriers to entry have really fostered innovative products and branding, and the quality and selection in California dispensaries is years ahead of almost any other market in the world.

James West:             So when I walk into a well-stocked dispensary in a prime location in LA or Oakland, I’ve got not just Jetty vapes but I’ve got hundreds of different brands of vapes and concoctions and combinations and formulations to choose from at this point?

Ron Gershoni:          You already have that. The market is shaking out a little bit and the costs of compliance in this transition are significant. So I do think we’ll see a number of existing companies that will not be able to make it through the transition, but that said, there are vape products; there are edibles, topicals, flower, pre-rolls… There is a whole lot of products that are branded and ready for you to pull off the shelf and consume.

James West:             It’s funny – our legal rules for recreational kick in in October, but our government is all about: ok, we will allow extracts but no edibles. And it’s just like: what’s the difference? What if I eat my extract?

So in California, are you concerned at all about the risk that an oversupply of product or raw material catalyzes a price competition to the downside that’s actually starting to eliminate this abundance and variety?

Ron Gershoni:          I don’t think it’ll eliminate the variety. But I do believe it’s inevitable that there will become an oversupply and it will have downward pricing pressure on the plant material itself. We’ve seen that happen in Colorado, Washington and Oregon. As these markets get developed, the supply side comes on strong and you do see that downward pressure. We’re not a cultivator and we don’t really intend to cultivate at scale, so we enjoy purchasing from farmers that we work with and processing the material into branded products, which I believe are going to be a bigger portion of the market and also a portion of the market that has more sustainable margins.

James West:             Hm, so is part of your day just going out to see all these farmers and seeing the crops and what they’re growing, and trying it out?

Ron Gershoni:          Unfortunately, I don’t get to do that too much anymore, but years ago…

James West:        Ha, do you need somebody to?

Ron Gershoni:          We’ve all done plenty of that, and at this point we’re a larger buyer and we have really solid relationships with some larger suppliers, but we’ve all spent a lot of time out at farms, and really enjoy supporting some of the small farmers that help build up the industry.

James West:        Sure. So what part of California do you source most of your raw material from?

Ron Gershoni:          Most of our material is coming from Mendocino county and Nevada county. We also source from Humboldt. We’re very selective about who we work with and we specifically want to test everything before we start processing it, to be sure it’s free of pesticides and so we’ll select out strains that we’re looking for from different areas, but currently Humboldt is not the majority of what we run.

James West:        Right. So your relationship with Cannex: what is that going to accomplish for Jetty Extracts as a national brand in the US?

Ron Gershoni:          Well, it became clear as the regulations were presented to the California companies that capital was going to be required in order to survive and to thrive, and so we went out looking for some capital partners, and we found in Cannex a real operation. It’s proven in the fact that they are number one in the state of Washington every month as far as production and processing. We see a lot of synergies with their operational expertise. They can add a lot more to Jetty than just the capital that we see coming in from all different types of sources. We’ll be bringing our Jetty products up to Washington and some of Cannex’ products down from Washington into the California market probably within the next month or two.

James West:         Sounds like a very happy relationship. All right, we’ll leave it there, Ron. I’ll actually come down and visit you next week in California and we’ll come back to you regularly and keep track of the story. I can’t wait to try the Jetty extracts.

Ron Gershoni:          I’ll put aside a 90% potency vape for you.

James West:        Ha, that will not be necessary unless you want to see me act like a clown. Well, thanks for joining me today and we’ll come back to you soon.

Ron Gershoni:          Thank you.

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