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Indiva Inc (CVE:NDVA) Preparing for Billion Dollar Canadian Edible Market

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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.

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Indiva Inc (CVE:NDVA) (OTCMKTS:NDVAF) (FRA:T8RP) CEO Niel Marotta talks about preparing for the legalization of edibles and derivative products in 2019. Marotta shares some non-infused chocolate samples and notes Indiva’s partner, Bhang, has produced award-winning chocolate in jurisdictions where edibles have been legal for many years. Marotta anticipates some medical demand for edibles and estimates the edibles market to be a $1 to $2 billion industry in Canada annually. While the large LPs are also preparing for the legalization of additional products in October, company’s like Indiva, which specialize in edible products, are uniquely suited to succeed in the expanded market. Marotta discusses other edible products Indiva will offer, including Ruby, the company’s line of cannabis sweeteners. Marotta estimates the company will generate $20 million in revenue from dried flower by 2020 and believes Indiva can earn a multiple of that target producing edibles, extracts, and ancillary products, which have a higher margin and provide differentiating opportunities.

Transcript:

James West:   Niel Marotta joins me now from Indiva. Niel, welcome back.

Niel Marotta: Thank you. Thanks for having me.

James West:   Niel, you brought some treats.

Niel Marotta: I did.

James West:   And they are loaded with hallucinogenic chemicals, I understand?

Niel Marotta: Not yet, no.

James West:   Oh…

Niel Marotta: If they will be hallucinogenic, and maybe that’s a whole other ball of wax.

James West:   Right, so they got some weed in them.

Niel Marotta: Yeah, they do not yet, but we have here –

James West:   Because that would be illegal.

Niel Marotta: We’re going to show these, but these are a couple of Bhang chocolate samples. We’re going to have a couple of pop-up shops handing these out February 15th, 16th in Toronto. We were handing these out at the LIFT conference. They are unmedicated, you know, we’re not allowed to sell –

James West:   They’re unmedicated?

Niel Marotta: At this point, they are unmedicated, so no THC, no CBD, so far.

James West:   Thank you. Just kidding, I love dark chocolate.

Niel Marotta: I tried, James, for you, but you know….

James West:   So this is the actual chocolate you’re going to have?

Niel Marotta: It is. They’re childproof, so you might be able to get it open with your teeth, but these are the – you may have some scissors kicking around here…

James West:   Damn! Okay. I’m going to pull out my incisors.

Niel Marotta: I think you’ve got it if you’ve got a little cut there, it should be able to rip open,

James West:   Childproof, well, it certainly checks the childproof box. I’m going to try a reverse pressure move.

Niel Marotta: So basically, maybe we need some scissors. Medic?

James West:   Medic! Can we get a scalpel over here? [laughter] Oh there we go, all right. Look at that.

Niel Marotta: After all that, I sincerely hope you like it.

James West:   Exactly. Nobody under 520 pounds will be able to get this open.

Niel Marotta: No. No kids will be getting this open; that’s important. So –

James West:   That’s true. So how are we going to get this stuff to the kids? No just kidding – inappropriate, I realize that. Okay, so is this actual chocolate that you’re going to use?

Niel Marotta: It is. Yeah, that’s the formulation for the dark chocolate, one of their 14 flavours. This is the formulation for the milk chocolate –

James West:   Oooh, that’s good.

Niel Marotta: Yeah, well, thank you.

James West:   Mmm.

Niel Marotta: I wish I could say I had anything to do with the recipe other than just licensing it, but we’re really proud that we have licensed the Bhang products, really the most delicious, the most award-winning cannabis chocolate on the planet. And so we’ll be bringing that to Canadians in the Fall as soon as we see the final regs to know when we can introduce those products. So we – go ahead – you’re still chewing!

James West:   Well, I was going to say, I don’t mind talking with my mouth full, everybody in my house does it; we’re basically a nation of swine, but – what can I say. So the claim that this is the best chocolate in all of Canadian cannabis is one that I’ve heard a few times.

Niel Marotta: I’m sure you have.

James West:   So how do you actually determine who’s got the better chocolate bar?

Niel Marotta: Well, Bhang really has won all kinds of awards, Cannabis Cup awards, etcetera, in the US over the last several years. And so certainly, because we haven’t made legally any cannabis chocolate in Canada I guess that’s legitimacy behind the claim that this is award-winning chocolate in other jurisdictions where edibles have been legal for some time, like California. And so now that it looks like by October, maybe there’ll be some delay, which, you know, we don’t think hurts Indiva too much, it just gives us a chance to build more inventory. But we’re excited to bring these products to market.

James West:   So wait a sec – did you say there’s a delay being floated?

Niel Marotta: Well, there was something on Bloomberg yesterday about whether October 17th would be the exact date.

James West:   Oh, Bloomberg, what do they know. Just kidding.

Niel Marotta: Ha ha, it was a comment from Bill Blair, so we take that pretty seriously.

James West:   Bill Blair, wasn’t he a former cop.

Niel Marotta: I don’t know, you tell me. I think so, yes, that’s my understanding. I’m no expert.

James West:   Oh boy, I’m gonna have fun with him when I get him on the show, if I ever do. Anyways, so, oh, look at that, I’m sitting somewhat out of frame. So what are you anticipating in the way of sales initially upon the legalization of edibles? Do you expect that your sales are going to be, first of all, mostly medical versus recreational, is it only recreational, and what kind of volume do you anticipate?

Niel Marotta: Specifically on the edibles side of things, we know there’ll be some medical demand; I mean, this has been settled in Canada, the RV Smith case, patients have the right to consume cannabis in whatever form that they like. So we’ll sell into that channel as we’re permitted. But definitely on the recreational side, we know from, let’s say the illicit market, and a lot of dispensaries that used to be open and by and large are now closed, edibles is a pretty, let’s say, 20 percent of revenue and looking at mature markets in that realm. So if we assume the cannabis market, you know, starts from around 5 billion in Canada and grows to 10, we would expect it to be about a $1 billion segment overall, growing maybe to 2 billion.

James West:   Wow. Just in Canada?

Niel Marotta: Just in Canada, yeah. So we think that’ll be a combination of things, whether chocolates or candies or gum and we have other products like licensed from Ruby, like cannabis sugar and salt; Ruby Gems, which are dehydrated organic fruit with cannabis sugar that we’d like to introduce. So there’ll be a really big variety of products out there.

James West:   Salt and get the munchies at the same time

Niel Marotta: Well, there are some strains that evidently do suppress appetite, so maybe that’s a trick someone’ll master.

James West:   Wow. That could be helpful in a weight loss program, I imagine. Are all the LPs ready with edibles strategies, or are you seeing that most of the landscape is going to be dominated at least at the early stage by speciality edibles companies like Indiva?

Niel Marotta: For sure the larger companies are preparing, and there’s been some press about that; I can’t speak for all LPs, obviously, but it’s been a huge part of our focus and strategy to license really high quality products, award-winning brands, disruptive brands like the Ruby sugar, this flexible edible idea that you can put sugar in your coffee or your tea as opposed to being, let’s say, not forced, but if you wanted to consume an edible, purchasing a final product. So we think definitely there’ll be a lot of LPs involved; it’s been our specific strategy, and we’re working very hard to be ready for next Fall. But yeah, there will be a lot of competitors and this is why we specifically went after award-winning products to bring to Canada, knowing that we don’t like science experiments and reinventing the wheel; and let’s start with something that’s already recognized as being very, very good.

James West:   Sure. How do you see revenues ramping for Indiva in 2019?

Niel Marotta: Yeah, so we are very close, and in conversations with many of the provincial distributors, so hopefully we’ll have something on that in the coming weeks and months. So we kind of targeted around 20 million for full-flower revenue; we’ll probably hit that run rate this year, but we’ll probably hit that total number in 2020. We’re about to bring on three additional rooms, takes us to 1,000 kilos; we’ll have six more flower rooms, takes us to 3,000 kilos, that should be done next quarter; and then really, what we say often now is, we’re not building a farm, we’re building a factory. And so we would expect, well, we’ll be at a $20 million revenue run rate let’s say on dried flower, we think we can do a multiple of that number making edibles and derivatives, concentrates and, you know, products like vape pens, tinctures, gel caps and chocolate sugar. These are the products we think that it takes a much smaller footprint, the higher margin product, and that ultimately will be differentiated. And so it’s a way for us hopefully to stand out in the market relative to, you know to growing and selling flower.

James West:   Right. So remind me, is Indiva planning not to grow cannabis?

Niel Marotta: Oh, no, we grow, we’re growing right now. Yeah, we’ve got, you know, hundreds of kilos in the vault and we are making oil right now through our partner MediPharm.

James West:   Right! In Barrie.

Niel Marotta: We’re close to supply agreements with some of the provincial distributors, and so hopefully we’ll have products on the shelves for Canadians April 1st. that’s really our goal, to be in the first 25 stores in Ontario for April 1st.

James West:   Wow. That’s great. Okay, well, we’re going to keep watching the story. Thanks very much for the update.

Niel Marotta: My pleasure.

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.