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VIDEO: Indiva Ltd (CVE:NDVA) Licensing Successful US Brands in Canada

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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

Indiva Ltd (CVE:NDVA) (FRA:T8RP) President and CEO Niel Marotta discusses what the company’s new sales license and onboarding of patients this quarter means for revenue. Indiva is licensing successful US-based brands into Canada in the anticipation of eventual legalization of edibles and other cannabis-infused products. Indiva has a partnership with Bhang, a large edibles company, to distribute its branded products. The company also has an agreement with Ruby, a producer of “flexible edibles” (cannabis-infused salts and sweeteners). Indiva is the only LP operating in London, Ontario and Marotta believes both the city size and the facility’s proximity to Highway 401 will be a benefit to Indiva. Indiva’s London base is both a cultivation and retail space and is fully funded to complete the buildout of that facility.

Transcript

James West:   Anyways, my next guest is a gentleman who we’ve had here before: Mr. Neil Marotta is CEO of Indiva Limited, not Indive-a. If you’ve been saying Indive-a, you’ve been wrong; it’s Indiva. Okay, we’re clear on that. Indiva trades on the TSX Venture under the symbol NDVA. Neil, welcome back.

Niel Marotta: Thank you, thanks for having me.

James West:   Neil, this market has been kind to some, brutal to others. It looks to me, looking at your chart, that you really haven’t got the lift that I sense in my bones is coming your way.

Niel Marotta: Yeah, thank you for that. I agree. We haven’t got the lift, and I think it is on the way.

James West:   Yeah, so tell me: what’s going to make it happen, what’s going to make it fly, what’s going to drive it to the moon?

Niel Marotta: Well, couple of things: last time we were here, we said we would get our sales license; we did get that in August, so we’ll start onboarding patients this quarter, which is great. We’ll start generating some revenue. I think at that point, people will see we have a real company, not just a stop.

James West:   Right.

Niel Marotta: The other thing we’ve done is, we’ve gone and licensed award-winning and disruptive brands in the United States, and we’ll talk a little bit about that hopefully in this interview. One is called Bang – we have a joint venture with Bhang. They make award-winning –

James West:   Bhang. I’m fine with that.

Niel Marotta: Bhang Chocolate. Yeah, live life with a Bhang is they’re – it’s spelled BHANG and –

James West:   Oh, that’s actually pronounced bong! There’s pronunciation issues in this industry.

Niel Marotta: Yeah, well, I’m going to stay – not wade into those waters, but we have a joint venture.

James West:   You say bang, I’ll say bong. Okay, joint venture – what do they do?

Niel Marotta: So the joint venture will have exclusive rights, 50/50 here in Canada, and the JV will hold the exclusive right to manufacture and distribute all of Bhang’s products, which are award-winning in the States. So that includes chocolates, vape pens…

James West:   Cannabis-infused?

Niel Marotta: Absolutely, yes. CBD, THC, all of the above. They also do oral sprays and isolates, gums, candies…so we’re really happy that we’re going to hit the ground running, once edibles are allowed, so within the next year or so, with award-winning products…

James West:   So you’re positioning for that inevitability?

Niel Marotta: Absolutely.

James West:   Ah.

Niel Marotta: The other thing we’ve done, James, is we licensed another brand out of Seattle called Ruby. A company called Deep Cell, a newer company, but what they’ve done is found a way to mechanically fuse cannabinoids with crystalline structures like sugar and salt. And they call them flexible edibles. We’re starting to call them choose your own adventure edibles – we’re not saying ‘eat this piece of chocolate’ or ‘eat this candy’ or ‘drink this drink’ but rather, “Add sugar or salt to your favourite foods”, you know, French fries, veggies, coffee, tea. Yeah, so flexible edibles; we’re really excited to bring those products to Canada.

James West:   So, cannabis infused sweeteners and salts: that makes absolute brilliant sense to me. So, let me just recap, and I apologize if I’m repeating yourself, but I’m a little slow today. So you are licensing successful brands in the United States, into Canada?

Niel Marotta: Yes.

James West:   For the inevitable Canadian acceptance and provision for the consumption of all of these different things that don’t currently exist?

Niel Marotta: That’s right, yes.

James West:   So that explains why your share price hasn’t taken off, because everybody’s like, waiting, waiting, waiting…

Niel Marotta: Yeah, I think people are sort of relating productive capacity to revenue and market share. I think what we’re saying is, Look. There’s a lot of capacity coming online here. We’re going to have high-quality flower as well; we’ll produce 3,000 kilos a year out of our facility in London. We’re also very excited to have farm gate sales, to actually have a retail store at our facility in London. That’s an urban location, it’s across the street from a wholesale club. There are nine hotels with over 1,000 rooms within a half-mile walk of the facility…we’re a minute from the 401, just right near Wellington and the 401 in London, and we’re the only licensed producer that’s operating in London right now.

James West:   Really?

Niel Marotta: So we think we have a nice, let’s say, first mover advantage, at least in the mindshare of Londoners, who also know Pete Young very well. I mean, he’s served thousands of patients there for two decades, now.

James West:   Okay. So, you know, the branding, we’re actually rolling portions of the website right now on the –

Niel Marotta: Oh, great.

James West:   The branding looks really slick, and really, like, I see a lot of marijuana company websites, as you can imagine, and some of them are more like, I don’t know, I don’t want to sound condescending, but some of them are just less sophisticated than others when it comes to the graphics and the colours and the fonts and everything. I’ve got to say, I’m loving what I’m seeing on Indiva’s site. See, I almost said Indive-a again.

Niel Marotta: That’s great, thank you. We have a great marketing team, they’ve done great work. Yeah, we’re very happy to have them.

James West:   Yeah. So how is it that, so, Pete Young is a bit of a famous guy in this whole mix, and he’s kind of like the brand ambassador for Indiva?

Niel Marotta: Yeah, to a certain extent, yeah. I mean, he’s still involved in the operations to a certain extent, but absolutely, the knowledge that he has, particularly his roots in the compassion industry – and actually, Pete has written a book called The High Road: Journey from Black Market to the Stock Market. His book’s been picked up by Indigo and Amazon, and it’ll be released on October 17th.

James West:   Oh, that’s an appropriate date.

Niel Marotta: Absolutely, yeah.

James West:   Coincidence? I don’t think so.

Niel Marotta: We’re very happy to have him on the team, too.

James West:   Sure, sure. Well hopefully, maybe we can get him on the show on October 17th. It’s going to be a fun-filled day.

Niel Marotta: Yeah, we’ll try. If he’s out there watching, you’re invited, Pete.

James West:   You’re invited, Pete. Come, Pete, come! Anyways, I look forward to meeting Pete one day, and I look forward to sampling these great products. Now, so tell me: at this point, what’s keeping Indiva moving forward in terms of, like, have you raised a bunch of money? Are you still access to capital is good, cost of capital is acceptable, lots of investor support?

Niel Marotta: Yeah, so we still have over 25 million in cash on the balance sheet, so our expansion of 40,000 square feet is fully funded, and we have ample cash left over. We hope to get to profitability. We have raised close to 50 million to date, which is, let’s say, on the lower end of the industry as a whole, but again, we’re not chasing grow capacity. And so we don’t measure our business in square feet or acres; what we’re after are great brands where we can capture market share. And inevitably, where we think will be the half of the market that’s going to have higher margins.

When you look at mature markets, it’s really edibles and derivatives and other products, the non-smokeable products, let’s say, that take big market share. Having great brands, and we think brands roll east and north. So, something that’s accessible in California, wins awards, we think will be fine. I don’t like science experiments, so I like the idea of hitting the ground running with award-winning product like Bhang, or really disruptive stuff like the flexible edibles, like Ruby.

James West:   Okay. I have a question for you, and this is an issue that I’ve come to be aware of. I’m curious as to, when it comes to the idea of cannabis as ingredients in edibles, consumable products, there’s been a problem with the stability of the cannabinoid content over time in terms of shelf life and stability, in that cannabinoids are subject to deterioration or concentration through different influences like the fats and acids that might be present in drinks and food, or by sunlight and certain display locations. So, how do you address the issue of shelf life for those products, and is that a problem that you’ve already solved?

Niel Marotta: It’s not something that’s been brought to our attention by our partners as a crucial issue that’s sink or swim, so to speak. Certainly with the dry flowers, if you use a nitrogen flush and hermetically seal the packaging, you’ll extend the shelf life. You’re right: the cannabinoids do dissipate over time, so there is a bit of a half life – like many products that are out there already. So I think that’s inventory, smart inventory management.

And the real difference, and part of what we also like about the edible scene, is that we don’t have to wait ten weeks, let’s say, for the flowers to grow and come out. So we can adjust, let’s say, our production so that we’re not having a lot of stale inventory on the shelves.

James West:   Okay. So you’re going to produce the products here under license from these brands?

Niel Marotta: Correct.

James West:   Okay, and so you’re going to obviously adhere to the strict testing regime that Health Canada demands for both recreational and medical products?

Niel Marotta: That’s right, yeah. We already are subject to those rules; we use third party testing. Hopefully, let’s say, we’ve been told sort of by early winter/late fall, we should have some guidance from Health Canada on how the edibles will be, let’s say, concentrations and packaging and things like this. So we eagerly await those rules, and absolutely we’ll make our products compliant.

James West:   Sure. Do you have an idea as to the addressable market for the edible segment of cannabinoids in Canada?

Niel Marotta: Well, we have data from the United States and more mature markets where, let’s say, roughly half of the market is dried flower that’s either smoked or baked, and then the other half would be what we call derivative products, broadly. And that would include edibles, vape pens…edibles are upwards of 15 to 20 percent market share; vape pens sort of 10 to 15. Then we’ve got this category of concentrates, whether that’s waxes and shatters, that are sort of the 5 to 10 percent range.

So we think there are very large and big markets that, let’s say, are underserved relative to the amount of dried flower that’s going to get produced in this country. So we’re excited to aim at those markets as our main focus.

James West:   Okay. Shatter, in particular is – and again, nomenclature in this industry is very sort of fractured and regionalized – shatter, to most people, most demographics, indicate a concentrate of THC above 80 percent. Is that accurate from your understanding?

Niel Marotta: So I’m a novice with some of these terms as well, so I don’t want to speak to the percentage, but that sounds about right to me. It is really, really high concentrated, almost a pure THC.

James West:   Sure. Do you think those levels of concentrates are ever actually going to be allowed in Canada?

Niel Marotta: I’m not sure, to be totally honest with you. I think if the goal is to eradicate the illicit market, there’s going to have to be some allowance for it; that’s not necessarily our focus. It’s part of the category I was describing, but these extremely potent products, that’s not – let’s say, our number one focus. But the margins will presumably be very good there. There is obviously a demand for these products when we look at mature markets, or even in the illicit market. So one way or another, it’ll be addressed, you know, in the context of public safety, sure.

James West:   Sure. So what, then, would be your distribution strategy for these products in Canada? Obviously, there’s going to be licensing issues or licensed locations; have you got agreements with physical stores, or ACMPR producers who might include your products on their shelves?

Niel Marotta: Yeah, so we’re in discussions with several of the large retailers that are rolling out stores, and the feedback on our branding and our product lines has been very good. So stay tuned on that.

We haven’t yet achieved any offtake agreements with wholesalers, mainly because we just got our sales license in late August, so we’re new to this. But those discussions are also ongoing, with organizations like the OCS and liquor distribution branch in BC. So stay tuned; we would expect that to happen in the short to medium term.

James West:   Right. All right, Niel, that’s a great update. What else has happened in the sort of the news universe that has sort of added to the value since the last time you were here?

Niel Marotta: Well, you know, going back to what we talked about earlier, the change in retail; we had made an announcement that we’d like to open retail stores. We’re waiting to see legislation to understand how we can do that with affiliates, but the official announcement that we can do farm gate sales, again, this is hugely beneficial for us in terms of, let’s say, existential risk to the company. We know that we’ll have, we’re a small market cap, 65 million, not 6.5 billion; so, one really successful store at our facility makes a huge impact on our future profitability and our access to the market.

And London, you know, it’s upwards of half a million people when school’s in session, to so speak. So not a tiny market by any stretch, and also, our location, you know, whether it’s people going towards Toronto or away from Toronto, being right off the 401, we think there’s huge potential there, as well.

We think also there’s opportunity to extend our brand into European markets and also into Asia. That’s the one piece of the pie we thought we’d have in place by now, but stay tuned: we’re working pretty hard on that, as well.

James West:   Right. Okay, so you’ve got dispensaries planned…what do you make of the Ontario provincial Premier Doug Ford’s plan stated to take the cannabis industry in the province private? Do you think that’s a realistic statement that can happen in the near future?

Niel Marotta: I think so. Yeah, I mean there’s absolutely a lot of appetite from folks that want to open retail stores.

James West:   I’d like to open one. Got a website.

Niel Marotta: There you go!

James West:   Why can’t I sell weed?

Niel Marotta: Yeah, I look at it as, and also, most importantly, there’s no limit on the number of stores. I think this will help price. It may hurt the retail margins somewhat, but you know, the more stores, the better, in terms of let’s say stealing market share from the real incumbent, which is the illicit market.

Also, more access points is better for us, and better for other LPs selling their products. So I think on balance it was a very good announcement.

Would be nice if we could open our own farm gate store a little sooner than April 1st; we’ll see what happens in this sort of six-month period, but, you know, my assumption is that people are doing the best job that they can. So we think on balance it’s a favourable change, a favourable announcement.

James West:   Okay, Niel, let’s leave it there. We’ll come back to you in a quarter’s time and keep following the story. I’m looking forward to October 17th, as I’m sure you are.

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

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