Heritage Cannabis Holdings Corp (CNSX:CANN) CEO on 2019 Canadian Growth Strategy
Heritage Cannabis Holdings Corp (CNSX:CANN) (OTCMKTS:HERTF) (FRA:2UE) CEO Clint Sharples explains why the company plans to act as a wholesaler to other LPs in 2019. Heritage Cannabis will create white label products and provide wholesale stock to LPs through existing supply agreements. One such deal is the company’s arrangement with CannTrust Holdings Inc (TSE:TRST) (OTCMKTS:CNTTF) (FRA:C9S). This week, the company will harvest its first crop at its Fort Erie facility as part of its fulfillment of the supply contract with CannTrust. Sharples explains that as a newer company in the industry, Heritage Cannabis has limited resources; consequently, its 2019 strategy is designed to bring the greatest return on investment as quickly as possible. Heritage Cannabis has purchased 50,000 kilos of hemp feed stock for extraction and when it is processed, represents potential revenue of up to $40 million for Heritage Cannabis.
Clint Sharples: 2019 has brought a lot. I think the last time I was here, we were talking about we just completed our $7.5 million raise, we just closed two transactions, Cannacure based down in Fort Erie near Niagara Falls, and Pure Pharma, an attraction company based out of Kelowna, British Columbia.
So both of those, completed, done before Christmas. Cannacure had done its first crop, planted its first crop, and took a little bit of a break over Christmas – not much, there’s a lot of stuff to do – but since then, we’ve been moving on full cylinders all going forward right now. It’s pretty good set up we have, smoking along.
James West: Right. So what’s – you guys were taking deliver of a large volume of hemp to process through your system to extract CBD. Has that happened yet?
Clint Sharples: No, the hemp hasn’t come in yet. Hemp has been processed and it’s sitting in Saskatchewan getting ready to be shipped.
James West: Okay, how much of volume, what dollar value of volume are we talking here?
Clint Sharples: So right now we’re looking, there’s about 50,000 kilograms sitting in Saskatchewan, a little bit more still to come in.
James West: And how many kilos of hemp CBD extract will that make?
Clint Sharples: You’d be looking at a dollar value of somewhere in the neighbourhood of $40 million, $30 million to $40 million depending on how the outcome ends up.
James West: So that’s like into $0.30 a share, $0.40 a share.
Clint Sharples: Well, you’re looking at revenue, $40 million. So when you look at the potential EBITDA of the company – you know what, at full pull, and I’m talking about an annualized number kind of by the end of this year, you’ll be sitting at about $0.03 or $0.04 in EBITDA.
James West: Wow, that’s impressive for a recent entry into the cannabis space.
Clint Sharples: That’s our goal right now.
James West: So the availability of cannabis extract feedstock in Canada is abundant, would you categorize it as, or, you know, selectively opportunistically available, or what is the story? Like, will you be able to buy and process crops of hemp whenever you want?
Clint Sharples: Hemp is much more readily available than cannabis is. Cannabis we can grow for our own requirements a little bit to accent what we’re doing, but right now the guys are planning on processing the hemp, what we have available and needing to be processed isn’t a small amount, so it’s going to take quite some time. And once we have our extraction until in, we have two machines going unto British Columbia, two machines going into Fort Erie to start, and then once they’re set up and going, we still do need our processing license to start our extraction; we are hoping that soon. That is unfortunately 100 percent out of our hands as 100 percent within Health Canada, but once we start that, it’s a good solid six to eight months of work to process all of this.
By that time, we’re expecting another crop to have come off – larger, more acreage that’s being brought. Our Saskatchewan partners are expanding the ability to grow more and higher API content hemp. We’re excited about that – that’s a big change for us.
James West: Okay, and meanwhile, back in For Erie, you’re going to be growing high grade THC flower?
Clint Sharples: We’re just about to do our first harvesting. It’ll come off, looks like next week, I believe, and right now it’s our agreement with CannTrust that we have, we’re growing their genetics and we’ll be selling back to them.
In the future we’ll be growing our own, and specifically for, depending on which oil based product we want to put out as the end product, we’ll be growing the cannabis to meet that.
James West: Very good. Is there any ambition for Heritage to expand globally?
Clint Sharples: You know what, I wouldn’t say no, we don’t have any interest in that. We are looking at a few things. With the limited amount of resources and capital that we have, we will be deploying that into the areas that have the best chance at making us the best return on investment in the shortest period of time. So everything that we do, every decision we’re making, and we’re deploying both human resources and capital, is on return on investment in the shortest period of time.
Obviously with this hemp and their ability to have the extraction units going on, that is by far our best opportunity for ROI. That said, we have been having a lot of conversations with a few entities out of the United States, and a couple of other countries, not for 2019-based business, but definitely for 2020.
James West: Interesting. So then the focus on the growth strategy for all of 2019 will be pretty much Canadian?
Clint Sharples: oh, for sure. It’s all about building up our own facilities. As everyone knows, coming up is going to be the green light for edibles. What that does, particularly for our facility in Cannacure in Fort Erie, because of its share size and the way that it’s been structured into a one, two and three, Phase I, already done, purely for growing; Phase II, we’ll be working on that, getting into extraction: Phase III, it’s all about edibles and the products you can make with the oils to bring about better margins, and we’ll be looking at partnering with companies who are quite knowledgeable with what they’re doing on the edibles and any additional based business that comes as a result of this.
James West: The most exciting thing in 2019 from where you sit for Heritage shareholders?
Clint Sharples: Well, you…
James West: [laughter] Boy, are they ever going to be disappointed. I’m going to have to get out my chequebook! No, I mean in term of the industry itself and the growth of the industry in Canada. Like, will Heritage see products on the shelves of the provincial vendors, do you have, you know, a product sort of array in mind for the onset of the edibles at this point?
Clint Sharples: We do. Heritage isn’t going to be aiming to the retail market in 2019; we’re doing everything almost exclusively wholesale. So we will be doing wholesale based products to other LPs, that’s where we’re allowed to sell, and we’ll be white-labelling and developing products for others. That does not preclude us from getting into retail should we have that opportunity, and we are having discussions on that. But it is not our priority right now, nor does it need to be, to get us to where we would like to be.
James West: Interesting.
Clint Sharples: For exciting stuff, there’s a lot coming up. We had a 60, a 120 and a 180 plan that we put together in November, we hit 60 bang-on, in fact we’ve started to accomplish some of the 120 goals that we’ve have – everything is on schedule. Looking for the 1809.; as soon as we hit that 180, we’ll redo it all over again. That takes us to the end of the year. As long as everything’s progressing nicely and as successful, it should be a good year for us.
James West: Do you think that there’s going to be any sort of price competition on CBD products as a result of the fact that, as you said, hemp is a lot more easy to acquire than THC?
Clint Sharples: Eventually. Do we see that in the next 12 to 18 months? Not at all.
James West: There’s just not enough of everything.
Clint Sharples: There’s not even close to enough. So when you look at the demand of this product and the expected demand when edibles when the door flies right open on that, no one seems to have, and you can’t have an exact idea of how large this market’s going to be; we’re just learning how large the dried flower market is, and you’ve seen our ability to keep up to that as suppliers, it’s virtually impossible. You know, Alberta and Ontario limiting the amount of retail stores because there’s not enough product. That’s a lot, in order to catch up, that’s a lot of product to catchup. We are going to be supplying a lot of product, but for the conversations we’re having right now, there’ no point in our foreseeable future that we say Wow, we might have a problem selling this product, nor do I believe there’s a foreseeable problem for any LP who’s doing a good job at this. Our guys in extracted product do a wonderful job, and you’ll see that demand.
James West: Okay, so you’ve closed that transaction now of the extraction company?
Clint Sharples: For sure, yeah.
James West: And tell me a bit more about those guys. Where did they, like, start, their extraction business, and how is it they’ve got this great pedigree?
Clint Sharples: Good group of guys, highly educated on engineering background. They actually got into it because of personal requirements, and when back in the days with their own personal licenses that they have, and they’d been producing, they produced oils under fruit flavouring and were able to sell it legally, and got into producing hemp. I’ve said on the long, and I maintain this – in fact, I’ve been saying this since I understood what extraction was all about – two years ago, I talked about extraction like it was, let’s plug in a machine, throw some cannabis in one side, and out the other side comes this nice oil. Wow, I was wrong.
James West: Yeah.
Clint Sharples: It turns out, you need to know what you’re doing, and not a lot of people do. These guys happen to be extremely good at it, they’ve built a good, educated team, going to be coming down here, going to be spending some time at Cannacure in Fort Erie; a couple of them will be moving here. It’s a great set up that we’ve got going: well educated, well trained team, exaction units up, they’ll be ready, we believe it’ll be the end of February when we’re ready to go. Then it’s our expectation that we’ll need a license from Health Canada to be able to do this; if we don’t get it in time, we have a Plan B. The Plan B is not as exciting as our Plan A, but it’s still enough to keep up moving forward, and that’ really our goal.
James West: Well, excellent. We’ll be looking forward to coming down with a film crew and shooing your crops down therein Fort Erie. Clint, that’s a great update; we’ll leave it there for now and come back to you in due course. Thanks for joining me today.
Clint Sharples: I’m looking forward to it. Thanks James.
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