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48North Cannabis Corp (CVE:NRTH) CEO on Strategic Partnership with Canopy Growth Corp (TSE:WEED)

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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.

48North Cannabis Corp (CVE:NRTH) (OTCMKTS:NCNNF) CEO Alison Gordon is thrilled with the company’s two new deals with industry giant Canopy Growth Corp (TSE:WEED) (NYSE:CGC) (FRA:11L1). The first of the two deals is a financing agreement stipulating that Canopy Growth will purchase stock in 48North for a total strategic investment of $3 million in the company. In addition, the partners also concluded a supply agreement; as a result, 48North will be a wholesale supplier of premium, dried flower product to Canopy Growth. The supply arrangement also includes a best-efforts commitment from Canopy Growth to carry 48North Cannabis products in Tokyo Smoke and Tweed stores. Gordon reveals that the company’s stock has risen approximately 35 percent since the Canopy deals were announced. This good news comes on the heels of the company closing a $10 million private placement and the release of its Q1 2019 financials, which illustrated 48North is EBITDA positive.

Transcript:

James West:   My next guest is obviously the fabulous Alison Gordon. She’s the CEO of 48North Cannabis Corp., trading on the TSX Venture under the symbol NRTH. Welcome back, Alison.

Alison Gordon: Thank you, James.

James West:   It’s too far, I can’t hug you anymore.

Alison Gordon: I know, what, you’ve got new tables…it’s like the Midas Letter is going to the next level.

James West:   Yeah, somebody’s trying to – I don’t know what it is, but…

Alison Gordon: Make you a profesh.

James West:   Well you know, it does take a full team to make me look –

Alison Gordon: It takes a village, here. They just powdered my nose; I’m like, okay.

James West:   So Alison.

Alison Gordon: Yes.

James West:   You did a deal with Canopy Growth, which is, like not Canopy Rivers, Canopy Growth.

Alison Gordon: That’s right.

James West:   Growth invested directly into you.

Alison Gordon: It takes an astute person to notice that, yes.

James West:   Which is kind of odd, because Canopy Rivers is supposed to be the investment enterprise, so I get the sense that if Canopy Growth put the money directly in and signed a supply agreement, that you must have some direct connection with the people there at Canopy Growth and they really like what you’re doing.

Alison Gordon: Well, obviously I can’t speculate for them, but yeah, we do have a really nice relationship with Canopy. We have so much respect for what they’re doing, for sure, so we would love to partner with them as we are, and we were really excited to be able to do that, and the supply deal is also great, because as you know, you and I have talked about this before: we’re wholesaling right now, I don’t see a first mover advantage to having brands in this current market of retail or whatever you want to call that right now.

James West:   It’s funny you should say that. I saw, so we had a guy in here who gave us some edibles that were not from the Cannabis Store – well, he’s not a legitimate supplier.

Alison Gordon: Okay, okay.

James West:   But all of the edibles were labeled exactly as if they had come from the Cannabis Store. Like, it looked just like that. So when you say there’s no point in branding in this market, I see exactly what you’re saying: there is no brand differentiation.

Alison Gordon: You know what? So you’re in the industry, you know that these are edibles are not allowed, so you know they’re not legitimate; but I think I’ve told you before that I get in fights with family and friends who are like ‘I bought these edibles from a legal cannabis store’. I’m like NO YOU DIDN’t!

James West:   [laughter]

Alison Gordon: So, yeah, the consumer’s for sure confused. I laughed, I went on the OCS the night of legalization at midnight, right, Tuesday night at midnight, and there’s brand after brand after brand. And if anyone, I’ve been in the industry now for five years, you’d think I would know the brands, I was like, what’s this brand? What’s this brand?

So I think it’s really unprecedent that you would have like 50 brands in the same category all launch on the same day, right? Can you imagine, from a consumer perspective?

James West:   Well, and they all have the same packaging. I mean, there’s no colour differentiation, there’s no font differentiation, there’s no mark, per se, no differentiating mark. So it’s like, I was looking at all the brands and saying ‘that sounds familiar; I wonder which LP that’s associated with?’ because there’s no clear association with which LP. In some cases, you go down through the descriptions and they’re there, but in most cases, it’s like, I don’t even know who grew this shit! Like –

Alison Gordon: And the consumer probably wouldn’t care. Like, you care, because you’re interviewing all of us, and you’re like, which LP is this, and for what purpose.

James West:   Right, trying to keep track.

Alison Gordon: But for the consumer, I think I keep equating it with like, imagine there had never been toothpaste before. Suddenly, there’s such a thing called toothpaste – you go and you buy Colgate, you love it, and then you go back the next time, there’s no Colgate, because that’s what’s going on. So you’d say, okay, well I kind of like that it was peppermint, and I like that it was in this kind of a tube; and I think that’s where it begins for consumers. They start to think about, oh, I liked that strain, or I liked that packaging, like in a bag or in a jar or whatever it might be.

But I just can’t justify to myself and our company why we would lose money or, you know, make very little money by right now being in retail. Before investors used to say Well, what retail supply contracts do you have? And you remember, probably four months ago, people were announcing they have an OCS contract; the stock would go up. Now, my answer is, I can have any supply contract I want, because –

James West:   Anybody can supply it to them.

Alison Gordon: They’re all the provinces are calling.

James West:   Exactly.

Alison Gordon: I think they’ve said they have about 20 percent of what’s been committed to them has actually been delivered. But why would I not make, you know, anywhere between $6.50 and $8.00 a gram with zero infrastructure costs, zero excise tax…you know, the LP we sell to, picks it up at their cost. I mean…

James West:   You bring up an interesting point that the government supply agencies have received 20 percent of what’s been committed to by the LPs. And we’re hearing these little sort of snippets of information coming out of news sources and the rumour mill, for example, Redecan was forced to withdraw product from the shelves because it was reported by the CBC that customers were finding bugs and mold and mildew in their product.

And now we’ve got another company that’s currently in the spotlight as a result of some short sellers who’s also saying that there are people making claims of mold and mildew. So I’m not going there; what I want to know is, is it the case that none of the LPs can actually grow marijuana in quantity at this point and supply it consistently to the government distributors?

Alison Gordon: What I would say is, I’m sure they can grow cannabis; when you are trying to meet a commitment and you don’t allow yourself the time on drying, let’s say, so this is something Jeannette, my co-CEO, is an incredible cultivator, has taught me: you know, if there’s any moisture, you know, in the packaging, you’re – there’s a possibility of mold.

So really, we’re all moving at such a quick pace, and everybody said Yeah, yeah, OCS or whoever, I can commit X amount of kilos to you, so they’re trying to quickly get that product out the door. I think that’s where you can get into some of those problems. But yeah, you and I have talked about this before: we have not seen evidence yet that people can grow on a mass scale. I have no doubt with the net brainpower and the money that Canopy has, they will figure that out.

But it doesn’t come overnight to say, you know, we’re going to mass-produce for the first time in the history of the world, cannabis. So yeah.

James West:   Well, I mean, I harken back to the underground days in British Columbia, and we had, at one point, what would for that period be a large-scale underground operation.

Alison Gordon: Which was? How many –

James West:   1,600 watt halide lights, 8, 400-watt sodiums in a separate environment for flowering. We had ozone generators and CO2 generators.

Alison Gordon: Wow [laughter] this is like a little operation? So how many square feet were you in?

James West:   How many square feet? Well, you know, it was the basement of a large house.

Alison Gordon: Right, so it was small. It was not.

James West:   No, it was a big house. It was a big, country house.

Alison Gordon: So it was maybe 2,000 square feet?

James West:   Oh, no. Not even that much. So like maybe, the one room was, I would say, 40 by 20 was the main growing room, and then the flowering room was actually bigger, but it was a big square and we only used one part of it. But my point was that, no matter what, that’s why we actually ended up growing Indica, preferably, because of the shorter growing cycle.

Alison Gordon: Right, right.

James West:   Because no matter what, the longer the plant stays in the room in that environment –

Alison Gordon: You’re taking a risk, exactly.

James West:   The more spider mites are, the more thrips there are, the more – we never had problems with mold and mildew, because in our case the problem was keeping the keeping the air at a sufficient level of moisture, generally, because you’ve got all this thousand watts of halide just blazing the room.

Alison Gordon: Well, in the black market it was different, too, because anytime that you had product on you is obviously there’s a legal risk, or a law enforcement risk.

James West:   Right. Get it in, get it out.

Alison Gordon: Right. So you saw a lot of the genetics that were coming through, but it’s quite interesting, because for us, we’re growing really well; it’s 40,000 square feet, and I know how difficult that is. So when I think about these large-scale indoor or greenhouse production, I don’t, you know, understand that. But you know, with Jeannette, we’ve put in our application. So MJBiz actually put out an article yesterday apparently, according to their sources, which I don’t know what they are, we are the only outdoor application with Health Canada.

So for us, like outdoor we run on a large scale is different, because you’ve got the elements there that can help take care of some of these problems, right? The air is flowing, you’re outdoors.

James West:   Spider mites do not happen in outdoor grows in Canada, I can tell you that.

Alison Gordon: Well, you know, there’s bugs that eat bugs and these things, there’s a natural ecosystem there. So I’ve been on the show talking about it before, and I always laugh, because after I look at the comments, people are saying, so here’s for you, has she heard of snow? And it’s like yes, we’re talking about one harvest.

James West:   We’re talking about in the summer.

Alison Gordon: I’m not suggesting that we are going to grow year-round, everyone.

James West:   Got a new strain, it’s called Snow Queen, and it grows in minus 30 degree weather.

Alison Gordon: It’s amazing. But the outdoor is going to be highly disruptive, and I’m just amazed that the market and people are not talking notice of this. And I don’t know if it’s that they don’t understand it, or they don’t believe it’s going to happen, or they’ve heard that there’ll be certain problems; but really, a lot of the same issues that you could have with people trying to disrupt your crop through pollen, I mean, that could happen in greenhouse, anyway.

So when you’re growing at $0.03 a gram wet, I mean, most of that will be used for extraction, but we can see, you and I have talked about this before, 60 percent to 70 percent of sales in California are the edibles, the vapes, the things that come from extracted products. And organic: I know that’s so important to you. So this farm is organic.

So I think that, you know –

James West:   I can’t wait to go there and check it out.

Alison Gordon: Do you want to come?

James West:   Oh, I’m – pfft…

Alison Gordon: All the security is up, like, it’s, it’s, it’s, yeah.

James West:   Okay, we’re going to bring the crew and shoot it.

Alison Gordon: Okay, well, it doesn’t, you know, in the winter, as we’ve decided –

James West:   We’re not coming in the winter.

Alison Gordon: Oh, you’re going to come in Spring.

James West:   Well actually, I’d like to come in June, get a shot of everything in mid-grow before it flips into flower, and then we’ll come back, you know, last week before harvest and catch the buds in the all their glory.

Alison Gordon: Exactly, and everyone says, you know, when I’m with analysts or investors, they’ll say, Well, why isn’t everyone doing it? And it’s like, I can’t really answer that question; I have the same question myself. But for me, I never would even have begun to think about doing this if it wasn’t for Jeannette. I mean, Jeannette, my co-CEO, not only did she co-found TGOD, but she also grew up on a, like in agriculture. Her family were the largest apple producers in Ontario. For her, this is second nature. So I get it; for some of the LPs that are run by public markets people, or you know, they’ve built out a team for indoor greenhouse, now thinking about tackling outdoor is not something for everybody, for sure.

James West:   You bet, you bet.

Alison Gordon: I don’t even remember why I was telling you about the outdoor. I think saying mass production is different when you’re looking at outdoor when you’re looking at the extracted products, it’s different than trying to mass-produce flower. I don’t know, did you order flower from the OCS? I can’t remember.

James West:   I have, I’ve actually had multiple samples.

Alison Gordon: And?

James West:   It’s uniformly disappointing. In fact, it’s what we used to call ditch weed. And it’s not ditch weed because it didn’t start off as great marijuana when they probably harvested it; it’s the treatment afterwards. So first of all, they include a desiccant pouch within each thing of the dried flower, and the great thing about cannabis is, is that there is a perfect, there is a perfect time to smoke it.

Alison Gordon: Right.

James West:   After it’s been harvested. And it needs to be slow-cured or dried in a, you know, dark, cool place, without breezes blowing, because you don’t want to shake off all of the trichomes, you don’t want all of that beautiful, you know, THC-laden stuff on the ground. You want it to be in there with it. And so I recall, again, harkening back to the legal market, you would be penalized if you tried to sell cannabis that had too much of a moisture content, and you’d be penalized if you sold it –

Alison Gordon: Too dry.

James West:   With too low a moisture content, because it would just turn to dust. And most of the stuff that I’ve been getting from the OCS turns to dust in your hands, and it’s just like, it’s not a pleasant experience.

Alison Gordon: Well, this is why I’m just, again, this is just a judgment on myself; I don’t want to have to figure that out for flower. I think that the extracted products and doing unique formulation in that area, they have a longer shelf life. I don’t know how we ever solve for the problem for that you’re speaking about. I mean, it’s not like in the black market, again, you harvest, you get it out as quickly as you can, it hits wherever it hits as quickly as possible; you’re never going to have that kind of time, in this, as I can see it, where you ha ve to store it, then you have to ship it, then it’s going to sit in warehousing for the provincial retailer.

So for me it’s like, let somebody else figure out the flower side and I’m more interested in the cosmetics and the vapes and all these things. But hopefully they’ll figure it out.

James West:   Okay. We got off on a real tangent there.

Alison Gordon: We always do.

James West:   But this is not about me, it’s about you. 48North – so tell me, what, so like, you closed a $10 million private placement.

Alison Gordon: Yes.

James West:   And you’ve got this partnership with Canopy Growth, now, who has also put in money and it’s a supply agreement, as well.

Alison Gordon: It’s a supply agreement and they’ve acknowledged that they are looking forward in the future to carrying our products and brands, so that’s a really lovely stamp of approval and confidence from, I would say, the biggest cannabis company in the world.

So we’re excited that they’re taking notice and that we have a nice relationship with them, so it’s all good. But for sure, I’m super pleased that we are finalized the deal with Good and Green, and that we will have the second facility, their facility in Brantford, and then the farm up there. So it’s like, we’re growing!

James West:   Okay, well, we can come up –

Alison Gordon: We’re all growing, and we’re up in the markets, if you can believe it. We’re up like 35 percent from yesterday.

James West:   Oh, wow!

Alison Gordon: I know, isn’t that crazy?

James West:   Driving the upswing, I love it.

Alison Gordon: Yeah, well, you know, like, it’s, I think people as I said about the outdoor, about these small LPs at first, I think the world was going, okay, the story is done, it’s one of these six players. And I’ve always been like, what? The story is not done; this is a long life. But we are able and we announced our first quarter financials, and we are EBITDA positive.

James West:   Awesome.

Alison Gordon: So I think that that’s the market’s going, hold on, like there are some really interesting focus businesses. We’re not trying to be a global conglomerate.

James West:   Fantastic. All right, Alison, we’re going to leave it there. Thank you so much again for coming in again; that’s it for this time!

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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