November 21, 2018

Wayland Group (CNSX:WAYL) Global Trendsetters

Midas Letter
Midas Letter
Wayland Group (CNSX:WAYL) Global Trendsetters

Wayland Group (CNSX:WAYL) (FRA:75M) (OTCMKTS:MRRCF) CEO Ben Ward sees the company as a trendsetter in the cannabis space. Ward believes that “you have to make the moves ahead of time, you have to plan, and if you’re just following the trends, piling on to the latest and greatest craze of things like funded capacity , registered patients, you’re really behind the ball and then you’re a follower, not a leader.” Wayland’s forward-thinking approach led the company to acquire its EU GMP certification nearly two years ago and is now a leader in Western Europe’s medical cannabis space. Wayland is one of only four companies with EU GMP certification to export cannabis to Europe and it intends to move more Canadian product to countries like Germany while there is no domestic production. Ward anticipates increased stability in the medical cannabis space globally by 2024 and is particularly excited by the potential of the Italian market, where regulators are also interested in the profitability of the industry.


James West:    Welcome back. My guest returning to the show is Ben Ward, CEO of Wayland Group, trading on the CSE under the symbol WAYL. Ben, welcome back.

Ben Ward:Thanks so much for having me, James.

[stock_chart symbol=”WAYL:CNX” align=”left” range=”1Y”]

James West:    And every time I talk to you, the developments within Wayland are leapfrogging the last development, and so, you know, I’ve got to say I’m just very impressed. So right now, it was interesting: we were talking earlier, and we were talking about EU GMP-certified facilities who are actually in a position to export to Europe, because Europe does not allow anything to be imported in the cannabis space that is not packaged and processed and grown according to EU and GMP standards, is that right?

Ben Ward:Yeah, that’s right. They send an inspector from the home state of the country that you’re importing to, and they inspect your facility in Canada or wherever else you are in the world, and then walk through every single step: your standard operating procedures, and they evaluate. So it’s another higher level standard than Good Production Practices that we see as the standard in Canada.

James West:    Is it the highest standard in the world?

Ben Ward:At present, it is the highest standard in the world.

James West:    Huh. Okay, so right now, the EU GMP certified exporters are limited to Tilray, Canopy Growth Corp., and Aurora, as well as Wayland.

Ben Ward:Exactly.

James West:    Okay, so, like, so this is the thing that I look at Wayland, and this is why I’m on the bid daily right now, especially with prices where they are, is, you know, there are no other EU GMP-certified exporters of product, or processes of product. And you’ve actually got a huge footprint in terms of the distribution, as well.

Ben Ward:Yeah. We have existing operations in Germany, and unlike many of our competitors, we’re not just talking about it, we’re actually doing it. So Wayland has an operational footprint in Germany, on the ground, distribution exists, and we have operations and distribution in Switzerland, as well.

James West:    In Switzerland, as well. Okay, so at this time, how many patients are you shipping to?

Ben Ward:In Canada, we had 11,000 registered patients, and in Germany we’re distributing to pharmacies; it’s a different model. It’s not a patient-based model. You ship to pharmacies, and then the pharmacies distribute the product to patients with prescriptions.

James West:    Okay, now, in terms of, I’m trying to get at here, the future on the medical side of Germany. Like right now, there’s only 30,000 prescribed patients. So it hasn’t adopted the momentum here where, you know, it’s a major percentage of the population is a patient of cannabinoids. What is the process by which that will happen? What’s the timeline until, you know, a majority of German patients are able to access the full range of cannabis products for the full range of indications?

Ben Ward:I think the timeline is about a year away. We’ve seen rapid uptake – remember, legalization only occurred in January of 2017, and specialists were prescribing. Now the indication range is broad, so we see people being prescribed cannabis on a ramp. I don’t think that it’s an issue of prescriptions necessarily being written, it’s more a complete lack of supply because, as you mentioned, there’s only four Canadian suppliers, and then you add Bedrocan AV – no one else is able to ship. As we’ve seen in Canadian recreational, there’s not enough product in this country to even supply our recreational demand, let alone medical demand, and there’s this massive demand from Europe, especially Germany and other patients, where patients are fully funded by health insurance for their cannabis product.

That’s an important differentiation.

James West:    So they have no problem having their product paid for?

Ben Ward:Exactly.

James West:    So how do you amp up the supply of cannabis products into Germany and Switzerland in the shortest term?

Ben Ward:It’s through distribution agreements like we signed with Cannamedical. Our agreement is the largest in the world; 9,000 kilograms over three years, and they’ve called us back, he called me as recently as 11:00 last night, and said Send more, we need more product.

James West:    ‘Send more weed!’

Ben Ward:Exactly.

James West:    That’s great. So the balance sheet of Wayland is going to reflect this increasing ramp-up into the distribution channels in Europe, in Canada?

Ben Ward:We’ll see transfer pricing for Canada. We’ll see the revenue recognized in the German subsidiary and then transferred to Canada; it’ll be a very healthy 2019.

James West:    Sure. Okay, so big milestones for Wayland going into 2019?

Ben Ward:Big milestones are approval of our existing facility in Canada, coming on and licensing, and then producing. Also we expect at the end of March to have our first mass crop coming out of our new facility, then moving to perpetual grow. That’s when we’ll see revenue really uptick in the company.

Other milestones, we expect to start producing cannabis in Germany, medically, under the tender process. And then moving into different markets like Colombia, where we announced our acquisition of a license there, and starting mass outdoor agriculture there. So these are – and then other countries entering into, and then having other import or distribution agreements with those. So I think Western Europe is a major area of focus for us, and things are in the works to move more products from Canada there, while there’s no domestic production country.

James West:    Okay, so in terms of the biggest global markets, what ones will Wayland be in – let’s look out 24 months. Where will Wayland be distributing to, in terms of the world’s biggest markets in two years?

Ben Ward:Yeah, I even like to look at 2024: how is this business going to be? You have to make the moves now to be present in the market then, as we were discussing earlier. We made the move in January of 2017 to become full EU GMP compliant in all of our production. You have to make the moves ahead of time, you have to plan, and if you’re just following the trends and piling on to the latest and greatest craze of things like funded capacity, registered patients, you’re really behind the ball, and then you’re a follower, and not a leader.

And where we’re leading? Western Europe has health insurance coverage for patients in medical, we saw the UK come online, the National Health Service will be implementing legislation. We’ll see a large market for cannabis in Europe.

In 20204, this looks like a rational, medical market globally, with a few outliers of recreational cannabis among that. So I think where we’re positioned is to be a leader in Western Europe, to have distribution there. The health insurance covers patients, and I think Italy is a growing market. We have established ourselves with an organic growth opportunity there with a great established agricultural partner. And we’ll be entering markets like that.

Italy is probably one of the most exciting cannabis markets, because they’re focused on the ability to gain revenue and tax revenue from this. Regulators usually only have downside risk, and what we’re looking at in Italy is regulators looking at it from, how can this be beneficial to the economy, to people, and help the broader spectrum of society?

James West:    Wow. So population of Italy?

Ben Ward:North of 60 million.

James West:    North of 60 million, so Canada plus half.

Ben Ward:Canada plus half, there’s a lot of exciting markets in South America, there’s opportunity to create biosimilar products there as well through trials. I think we have to look beyond Canada; knowledge and tech transfer is what we have as a company because of five years of experience here, but really taking that to the rest of the world, where there are mass population bases and markets that everyone’s using cannabis, but how do we see that come above the table? And it’s an exciting opportunity.

James West:    Yeah. So this is one of the discrepancies I see a lot in the mainstream, is that people are always clamoring about California, and California is the biggest market in the world, and it’s like, no it’s not. It’s like Italy, for example, is 60 million people. Germany, how many people live there?

Ben Ward:Germany is 85 million people, and plus another 5 million people who have residence there. You have a 90-million-person market, and remember, it’s not pay out of pocket; it’s health insurance payment. So –

James West:    Free weed.

Ben Ward:California is a place that things are commercialized, it’s a great place as much as Milan is for fashion, California is for entertainment, so there’s a lot of talk about it, but there’s a lot of bandwagon-hopping, and so if one person gets valuation from going to California, everyone piles on.

So we see a lot of people chasing trends instead of making trends. With Wayland, we’re trend-setters.

James West:    Sure. A feature of trying to pile onto a very sort of mature market in terms of regulation like California, is that at what point does price competition start to undermine the profitability of the massive group trying to, you know, compete?

Ben Ward:That’s a reality for us globally, and I think that a lot of people projecting large profit margins, especially with US Tax Code 280E, until there’s some type of Federal legislation – you have to remember, all US companies are being taxed on gross revenue. And they’re paying tax on that base; there’s a lot of financial maneuvering. So everyone can pile into 100 million of revenue, 200 million of revenue; we’re focused on profit. If it’s not profitable for us and we don’t have those buckets of margin, why participate in that market?

So California is interesting when legal, and then see who the major players are and whether it’s worth competing there. But right now there’s enough fertile soil all over the world that we can participate in, so we’re not US-centric.

James West:    Right. So the other aspect for Canadian investors and actually other investors globally is, if you invest in a US enterprise that’s deemed a domestic enterprise by the SCC or the IRS, then you’re looking at withholding tax, which is, you know, can be a real nightmare to recover.

Ben Ward:Yeah. There’s a lot of legalitites, and we’ll see how things flesh out, but for us, Wester Europe is a great market. South America, and then moving into Asia. This isn’t just Canada or US-specific trend; we see a lot of US-specific news here in Canada, but this is the front of the page of most newspapers globally.

James West:    Yeah. What about China? Is China a market that people can consider as a future cannabis marketplace?

Ben Ward:I don’t think so, at this time. I think that legalization is a while away, there. They’re a large hemp producer, and they’ve used cannabis in traditional remedies over time, but we just haven’t seen any progression there. But Japan’s an exciting market, especially for CBD products, and I think we’ll be looking at something there in the near future.

James West:    Wow, fantastic. The Canadian sort of supply chain seems to be a bit broken, in that, you know, I’ve been to a lot of the growers, but the Ontario Cannabis Store is out of weed all the time and out of most products, frequently. So is the Canadian market more problematic at this point, than, you know, it seems, or than we expected when legalization took place in October?

James West:    I think the Canadian market is very mature from a consumer standpoint. What I think that the issue is, is the legalization timetable and time frame was accelerated with no real thought as to what does it actually take to implement this. And the main headline here is, Demand Exceeds Supply, and no one could have guessed that there’d be that much demand. I sat in my easy chair at 12:01 a.m. and ordered my product from the Ontario Cannabis Store, and I’ve received 2 grams of it, and the rest are apparently now delivered to my house today. So that’s a time lag, but I think that we got all of our numbers on what the real market is in Canada, from criminals and people looking at the criminal activity. Well, criminals aren’t declaring their public demand for product.

So what we’ve seen is an explosion of demand; we see what the real size of the market is now, and we also have supply chain issues when we receive excise stamps and POs two weeks before legalization, and deliver now in these product formats and, by the way, we want all 1-gram sampling jars. Well, it’s a challenge for us. So I think we’ll see that normalize out over Q4. It already is starting to on our end; a little few hiccups that we’ve had at the start have been smoothed out, and then in Q1 we’ll really see that growth of those of us who are well-positioned to being able to supply the provinces.

You have to remember, the provinces didn’t pick their original large supply orders like the stock market does, picking people on daily volatility; they went as external validators and chose those of us who they believe can supply them with large amounts of cannabis over the course of time. So I think the external validation is there of those of us who won the big agreements, and I think that you’ll see groups like Wayland shipping a large amount of product Q4, Q1, and then it’s next year.

James West:    Okay. So then, from what you’re saying to me, the idea of funded capacity doesn’t seem so important; it doesn’t matter that you can have funded capacity that has no distribution channel. What are you doing? You’re basically growing compost.

Ben Ward:Yeah. So a lot of people cashed up and said that they were going to build these massive facilities; we are building a massive facility, and we’re halfway there. Rooms are online, growing, sales license in that facility. I think just looking at funded capacity is a complete misnomer; are the numbers actually there? Have these groups even achieved a sales license, and what are they doing?

So a lot of them are competitors or would-be competitors in the market vying for attention; I don’t think that we’ll see much of that capacity ever built, because those of us who have a head start will get there, so I’ve mentioned this before: it’s unfortunate for the industry, there will be a lot of spectacular failures, but there’ll be great successes at the same time, much as the dot-com boom. How many people owned Ask Jeeves? How many people owned Everyone wasn’t a Google.

James West:    Right, that’s right. Interesting. Okay, well, Ben, let’s leave it there for now. We’ll come back to you in another couple of weeks and keep the conversation going. Thanks for joining me today.

Ben Ward:Thanks a lot, James.



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