Flower One Holdings Inc (CNSX:FONE) Nevada Cultivator Looks to Supply Las Vegas Rec Market
Flower One Holdings Inc (CNSX:FONE) is a Nevada-focused cannabis company. President and CEO Ken Villazor explains that while Nevada is a state that allows full vertical integration in the cannabis industry, Flower One is focused on its core strengths of cultivation and production. The company’s flagship facility is the largest commercial greenhouse in Nevada. With over 400,000 square feet and an adjacent 55,000 square foot post-harvest production facility, Flower One’s flagship site is 12 times larger than the average Nevada facility. Nevada is visited by 55 million tourists annually and is primarily a recreational market. While the state believes it has the capacity to meet the needs of this significant customer base, Nevada requires a broader retail footprint. As a result, Nevada is no longer granting licenses to cultivators; however, it is doubling the amount of retail licenses it grants, which represents a huge value proposition for Flower One.
James West: Let’s start off with an overview: What is Flower One?
Ken Villazor: So we are a cannabis company and we’re focused in the US market, and a step one we’re focused in Nevada.
James West: Okay.
Ken Villazor: We’re really excited about the Nevada market. You know, we can talk a little bit about that, but in that market, we have two assets: we have a 25,000 square foot indoor cultivation/production facility, it has five licenses, four operational, one provisional. And we have our flagship facility, which is the largest commercial-scale greenhouse in Nevada. It is currently under conversion; we’ve put about 40,000 hours of construction and renovation into it.
James West: How big is it – what’s the footprint?
Ken Villazor: So all in, it will be 400,000 square feet of cultivation.
James West: That’s a big facility.
Ken Villazor: It is big. And then right adjacent and built onto the structure of the greenhouse will be a 55,000 square foot, post-harvest production/packaging facility as well. It’s large, you know, we think in the cultivation/production space, scale will win. And you know, it’s very important when you’re playing the long game in this space.
And when you look at Nevada, it’s a consumption-heavy market with the significant tourist population of Las Vegas. And so, you know, we really like the market; it’s well-regulated. So we think there’s tremendous opportunities, and we’re well-positioned.
James West: Sure. And is Nevada one of those states where you can be vertically integrated from seed to sale in the retail context?
Ken Villazor: Yes. You know, the way it’s structured in Nevada is, you can own any part of the value chain. So currently, there’s about 270 or so license holders in the state.
James West: 270?
Ken Villazor: 270, but that’s along every part of the value chain. So if you broke that up, you’d have about 115 cultivators, 80 producers, and those are license-holders that can process dried flower and trim, about 62 to 65 in the market today active retail dispensaries, and 9 distributors and 9 labs, roughly. So that’s the composition of the market today. So you can own one of those licenses along the value chain, or all of them. In our case, we’re a big believer in concentrating on where we’re good, and our strength is cultivation first and foremost and production.
And you know, we’ve approached the Nevada market in a fairly unique way: our focus isn’t vertical integration. We don’t see that as being paramount or critical to the success of our business. What we really like is the fact that when you look at the Nevada market, one of its defining attributes is that heavy tourist space in Las Vegas. In the State of Nevada, you have 55 million people that come into Nevada every year, and about 42 to 45 million that target Las Vegas. So that’s a significant influx, it’s a steady flow in terms of an addressable market coming in 12 months of the year. And you know, for us, we really see that as being significant. It’s a rec-based market.
So for us, you know, we look at that and say, if you’re a brand in the United States and you have had success and gained market share in another market like California, you want to build your brand equity eventually across the country. And right now, the US is very fragmented in that it’s a state-by-state market. So really, for those brands, the opportunity for Las Vegas is, you’ve got those tourists that come in, they’re in there for a purpose, and we feel it’s very much aligned with cannabis – they have that experience of using your brand or your product in the market, and then they go back to their home market.
So it’s a very efficient way to build brand equity, and we think those brands, for that very reason, are attracted to the Las Vegas market. So if that brand wants to enter the market, they really have only one of two pathways to get there: they either acquire licenses, build up cultivation and production so that they can grow, process and package their product, or they can partner with a company like Flower One. So that, for us, is the opportunity, and you know, right now we’re in the midst of having many concurrent conversations with brand partners.
James West: Sure. Okay, so in the grand scheme of things, is Nevada going to continue to issue licenses across the whole value chain on a progressive basis, increasing competition?
Ken Villazor: Yeah, it’s not. I think the State has made a decision that with the exception of retail, they’re fairly comfortable and feel the number of licenses that are in the system today is the right number. So in the case of retail, and this really benefits Flower One, the state has just approved, in effect, a doubling of retail licenses; so literally, just earlier this month, we’re moving from about 62 licenses to over 120. So by this time next year, you’ll see a doubling of the retail footprint, and each of those, you know, 120-plus retailers, they’re key customers for us. We want to do business with all of them.
James West: So they’re going to double the retailers but not double the growers?
Ken Villazor: Precisely.
James West: Well, that’s a built-in value proposition right there.
Ken Villazor: Yeah, again, I think we feel we’re really well-positioned to serve that market and work with many reputable brands who really want to gain shelf space in the state.
James West: Right. Okay, then, so is your ambition ultimately to become a multi-state operator, or are you going to focus exclusively on Nevada?
Ken Villazor: Yeah, I think we get asked that question all the time, and really the answer to that is, our commitment to our shareholders is to stay sharply focused on Nevada. I think what we’re seeing in this space, both north and south of the border but particularly here in Canada, is that shareholders now are really expecting public companies in this space to deliver results. Generate revenue, generate cash flow, and deliver those numbers. And from our point of view, you know, with our Board, our management, and our senior executive team, we don’t think we can do that well or do that quickly unless we focus on a single market.
So, you know, Nevada for us is the focus, and you know, if you sort of look at where the company will be over the next two quarters, we’ll basically be onboarding plants, we’ll complete the greenhouse conversion in January, February we’ll onboard plants, we’ll be fully canopied in that facility in early Q2, and we’ll be doing our first harvest and processing in the back half of the first half of the year.
So for us, that’s significant, and I think once we get there, I think then our Board and our advisory team will then look towards other markets, and there’s a lot of good markets. We like California particularly.
James West: Okay. So what are the opportunities for consolidation in Nevada, and is that something that you guys are sort of looking at as a growth strategy?
Ken Villazor: Yeah, consolidation for us in Nevada isn’t something we’re looking at, and I think the reason being, you know, we have such significant scale in the market today. If you took, you know, the top eight or ten cultivators and producers in terms of just pure square footage and averaged that out, we’re about 12 times larger. So –
James West: Wow. That’s a big facility. I’ve been to a few in Nevada and there’s nothing near that size that I’ve seen.
Ken Villazor: You’ll have to come and see ours the next time you’re down.
James West: Yeah, definitely.
Ken Villazor: But it’s, you know, it’s – you know, we have sufficient scale. We may look at a few additional assets to support production and processing down the road, but at 455,000 square feet, we really feel we have what we need to accommodate, you know, the needs of our brand partners in the market.
James West: Very interesting. Okay, so then, is the proliferation of growers and distributors in terms of the retail context, is that something that you think is closely regulated in terms of available market addressable market versus available supply, and is that what’s governing the State of Nevada’s distribution of licenses? I’m just trying to understand why they would allow double the dispensaries, or retail sales locations, while not increasing the available suppliers, and is that – is there a formula that you’re aware of, there?
Ken Villazor: Yeah, I’m not aware of a formula, but I think I could say a couple of things. One is, when you look at the market, the addressable market, you know, it’s – 70 to 75 percent of the market is really concentrated in Las Vegas area.
James West: Okay, so tourists.
Ken Villazor: For obvious reasons. Tourists, it’s a heavy rec market.
James West: And are there numbers that you can speak to in terms of what exactly is the cannabis market in Nevada in the last quarter, year?
Ken Villazor: Yeah, so the state, because they have seed to sale tracking, they have a very good handle in terms of metrics. So a couple things there: the run rate right now, if you looked at total annual revenues, total sales of cannabis in Nevada, it’s at about a $600 million run rate per annum. So we’re only 18
Reno and Carson City. So I think that’s important months into full legalization. We think it’s at least a $1 billion market.
So I think the way the regulators and the State look at it is, you know, there certainly needs to be a broader retail footprint to meet that market, not just in Clark County but, you know, in markets like. And I think when they look at projected supply coming online, including our forecasted supply, which is about 140,000 pounds, 62,000 kilograms, I think they sort of see that there’s enough there, likely, in the short term, to meet the market needs.
James West: Right. Okay. Well, that’s great, Ken. We’re going to leave it there; we’ll come back to you in due course and have you back again – and we’ll come down and shoot your facility because I’d love to see that big thing down there.
Ken Villazor: Please do. I would love to have you down there.
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