Westleaf Inc (CVE:WL) is a vertically-integrated cannabis company operating in Western Canada. CEO Scott Hurd shares that Westleaf’s 115,000 square foot production facility is under construction in Battleford, Saskatchewan, which will complement its existing multi-purpose facility in Calgary. Hurd explains that the cornerstone of Westleaf’s strategy is its retail distribution. Hurd notes that because advertising and packaging regulations are so strict in Canada, LPs are currently selling undifferentiated product. In a market in which it’s difficult to create brand recognition, Westleaf believes the retail experience offers the best opportunity to control consumer experience and build brand awareness. Unfortunately, most retailers offer consumers undifferentiated experiences; in contrast, Westleaf’s retail franchise brand, Prairie Records, connects with customers through music while providing brand awareness through branded music merchandise like records. Westleaf is planning to open 30 retail locations across British Columbia, Alberta, and Saskatchewan, with 20 locations operational by the end of 2019.
James West: Hey, we’re back in studio and right now with me I’ve got Scott Hurt and he’s the co-founder and CEO of Westleaf Cannabis trading on the TSX Venture under the symbol WL. Scott, welcome to our little show.
Scott Hurd: Thanks for having me.
James West: Scott, give us an overview: what is Westleaf all about?
Scott Hurd: So Westleaf is one of the only, or one of the very few, vertically integrated cannabis companies.
James West: That’s a bold statement.
Scott Hurd: Well, what I mean by that is, we own or control assets across the entire cannabis value chain, so starting with production and cultivation – we have a large-scale, about 115,000 square foot production facility under construction in Battleford, Saskatchewan, we have one of Canada’s largest processing, extraction, R&D, manufacturing and Fu fulfillment centres located in Calgary, and really the cornerstone of our vertically integrated strategy is what we’re doing on our distribution. And the reason we think retail is so important is really two reasons: number one, the Federal packaging and advertising restrictions in Canada are so restrictive that, in our opinion, licensed producers today are effectively selling undifferentiated product.
70 percent of the packaging is Health Canada warning labels; you get a rather small allocation for a benign brand element, they restrict the colour, the size, and then you compound that with the fact that licensed producers can’t use traditional advertising mediums to reach consumers, and what you have is a market that’s incredibly difficult to build brands that align with consumers.
James West: Right.
Scott Hurd: So our thesis has been it’s through the retail distribution that you get the best opportunity to control the consumer experience, and ultimately help shape and influence their purchasing habits to buy our products, create demand equity, and ultimate create demand pull through our vertically integrated supply chain.
James West: Interesting. So what is your retail presence?
Scott Hurd: So currently we’re doing about 30 retail locations across Canada.
James West: 30?
Scott Hurd: Correct.
James West: In which provinces?
Scott Hurd: Saskatchewan, Alberta and BC, and we should have north of 20 operational in 2019. And what’s really unique about our retail strategy is our approach to retail. So we did a competitive analysis of the Canadian cannabis retail landscape, and we saw two things: the fist is that it was high undifferentiated, and the second was that we could really group our competitors into two distinct buckets. So on one end of the spectrum, we saw everyone trying to be the Apple Store of cannabis, and when you look at a lot of 3our competitors and you ignore the colour palette and you go, the in-store experience is functionally the exact same.
On the other end of the spectrum are these groups that are reinforcing the stigma that we’re trying to get away from as an industry in general, and that’s that Cheech and Chong, head shop like feel. So we recognized a tremendous white space opportunity to do something unique and do something different, and so we worked with a creative design firm to come up with our cannabis retail concept, which is called Prairie Records. And what Prairie Records is, is a reinvention of the cannabis purchasing experience that leverages the instinctual tie of recreational cannabis and music.
James West: Oh, okay.
Scott Hurd: Sophisticated yet approachable environment that appeals to a wide variety of consumers.
James West: Huh. That’s interesting, cause when you said Prairie Records, my first thought was sounds like a record store, and that immediately got me thinking, well, almost nine times out of 10 when I went to a record store as a young person, I was high, which is hilarious.
Scott Hurd: Well, everybody has a relationship with music, and it’s through that relationship that we think we can align with consumers in a way that our competitors can’t.
And so the Canadian cannabis retail experience is unlike any other retail experience in the world, and what that is, it’s so highly restrictive that when you come into the store, there’s no product on the floor, everything is behind lock and key, there isn’t really great opportunities to merchandise. So the problems facing all retailers today is, how do you create a unique and engaging retail experience that’s tangible and educational for the consumer? And that’s what we deliver with Prairie Records.
So when you come into our stores, you’ll find all of the traditional medium that you’d find in the Apple Store of cannabis: you’ll find the digital media board, you’ll find the sales associates with iPads, but we take it one step further, and when we call it Prairie Records, we actually use records to create a tactile and engaging and educational experience for the consumer.
James West: So, like, vinyl records?
Scott Hurd: I brought a couple.
James West: Oh!
Scott Hurd: We’re partnered with Tilray, and this is actually the Tilray High Park brand, and what we’ve down in stores, we’ve taken all of those elements that Tilray and High Park would have wanted to put on the packaging but they can’t because of the packaging restrictions, and we put it on a recording the store. And what this does is, it gives dimensions to the brand, it provides an opportunity to co-curate content with them, to talk about the effect of the product or the flavour profile of the product.
James West: And is there music in there? [laughter]
Scott Hurd: There actually is an album in there.
James West: Oh! What band?
Scott Hurd: Well, it’s not a real album, it’s just an album that’s a branded, but you can’t – well you could listen to it, it’s actually an old vinyl record.
James West: Wow, that’s cool. That’s such a clever idea I can understand why Tilray would partner with you, because they’re kind of sort of visionary in that regard. So I’m going to be in BC next week – is there a store in Vancouver?
Scott Hurd: We don’t have any stores open in BC yet, we actually have a store opening next week in Warman, Saskatchewan, which is about 10 minutes from the Saskatoon airport.
James West: Might be worth a little side trip.
Scott Hurd: Well, we’ll invite you out for the grand opening on February 7th.
James West: Sure. This is the most unique and original approach I’ve heard to the idea of retailing cannabis in Canada, so a), I’m super impressed, I can’t wait to visit a store. C, I’m curious as to how are you going to overcome the restrictions on advertising and marketing? I mean, it’s great thing to open a retail physical presence and location, location, location, yes, but what are restrictions on signage, on advertising in publications, in putting a sign in the window saying something’s on special. Is all of that off the table, at this point?
Scott Hurd: Yeah, it is quite restrictive, and mot of the advertising is targeted, you have to utilize mediums that are targeted to 18 or 19 plus. So really your best opportunity to advertise is actually inside a brick and mortar retail store, and it’s through the whole record concept where we can really dimensionalize brands and bring products to life in-store and help consumers align with products of our own an that of our strategic partners, which includes Tilray and VIVO.
James West: That’s interesting. So does this approach to retailing cost you anything more than any other approach to retailing?
Scott Hurd: Not really. I would say our strategy skews to a more premium end, just in the way we’ve been designing and building our stores, so our strategy has really been to locate our stores in very high-traffic areas, densely populated areas, resort areas, and so we’re skewing to the high end with it.
James West: Do you have any plans to migrate to the United States when laws make that possible?
Scott Hurd: I mean, we’re really focused on executing in 2019. As I mentioned, we’re building upwards of 30 retail stores, we’re operationalizing a lab and processing facility and large-scale cultivation facility, so the focus is on execution, but also looking at international opportunities where we can expand our brand over time when we’re ready.
James West: Very cool. Scott, that’s one of the best stories I’ve heard this year for sure, if not the best retailing story I’ve heard, yet. So we’re going to follow this story closely. Thank you very much for coming in and giving us a heads up on this, and I’m going to come out and visit you at one of your retail stores as soon as I possibly can.
Scott Hurd: Fantastic. Well, thanks for having me.
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