WeedMD Inc (CVE:WMD) Harvests First Outdoor Crop

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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.

WeedMD Inc (CVE:WMD) (OTCMKTS:WDDMF) (FRA:4WE) CEO Keith Merker joins Midas Letter to discuss the company’s latest cannabis harvest located on 27 acres at its facility in Strathroy, Ontario. The CEO details WeedMD’s outdoor-grown premium cannabis and the quantity of dried flower a 27-acre grow can produce in the context of a government-regulated store. WeedMD produce cannabis for medical and recreational markets and recently secured a Health Canada licence amendment approval for its 50,000 square foot property to dry, process and cure outdoor-cultivated cannabis.Discussing profitability, Mr. Merker states “With the 18 rooms we now have online in the greenhouse, our forecast would be to achieve a situation where this company is sustainable for the long run, by mid-2020, if not before.”

Transcript

James West: Keith Merker joins me now, CEO of WeedMD. Keith, welcome back.

Keith Merker: Thanks for having me.

James West: How was the harvest?

Keith Merker: The harvest is ongoing.

James West: Ongoing?

Keith Merker: Yeah! We started a couple weeks ago, and we are now sort of at that inflection point where things start to ramp up significantly. Mother Nature is cooperating with the weather, and the team is out there working diligently harvesting.

James West: She is. How many acres are you harvesting?

Keith Merker: We’ve got 27 acres.

James West: And is this hemp, or cannabis proper?

Keith Merker: It is cannabis proper.

James West: Woo! So THC and CBD?

Keith Merker: We got high THC, we’ve got high CBD, we’ve got a blend of both; whatever suits your fancy.

James West: Okay. So now, pop my delusion: is cannabis grown outdoor qualified for premium dried cannabis in the context of a government-regulated store?

Keith Merker: Great question, and I will answer it a little bit – I will answer it like this: It’s still early days. We are harvesting some great, great buds. Our Ghost Strain Haze strain, for instance, seven feet wide by seven feet tall; the apex colas are being harvested as we speak. They look lovely. They’re wonderful. I wish that we were able to sell them as-is, by weight, as you do produce, and say – 

James West: That day is coming.

Keith Merker: The day may come. But unfortunately, for the time being, we need to chop it up into little bits and produce, you know, 3.5 gram skus for the provinces, and 5 gram skus for our medical patients, for instance. But what we are seeing so far is high, high quality buds that we’re receiving from the outdoor field.

James West: Great.

Keith Merker: It has yet to go through the full drying, curing, testing process, etcetera, etcetera, but we anticipate having a bumper crop, not only from a yield perspective but from a quality perspective.

James West: Cool. And next year, how many acres will you cultivate?

Keith Merker: So, 27 this year, with the ability, with our current property, to get to 100 next year.

James West: Okay. How many pounds of feedstock does one acre of cannabis produce in terms of dried premium input?

Keith Merker: So our early estimates were just shy of a tonne an acre. So – 

James West: That’s dried?

Keith Merker: That’s dried product.

James West: A tonne? 2,000 kilograms? 1,000 kilograms?

Keith Merker: One thousand. So you were converting to pounds, perhaps, but right, so roughly a tonne per acre. We, and again, it’s still early days for us for me to sort of put a stamp on that and say here’s what we achieved, but I can tell you again, going back to those Ghost Train Haze plants, we anticipate some of those coming out at 2 kg per plant, 1,000 plants per acre.

James West: Wow. And how much do you get for a tonne of cannabis grown indoors?

Keith Merker: It’s an evolving industry. So I could answer that question in a lot of different ways.

James West: Hypothetically.

Keith Merker: So, whether it’s retail, whether we’re selling bulk, whether we’re selling trim, and, you know, trim, biomass, for instance, in some cases, we will sell to folks who use it for extraction, and they’re paying, these days, not by the gram but by the cannabinoid. So there’s a very big delta in our revenue based on whether that trim product has 10 percent cannabinoid content or 20. So that’s just one example.

So it’s very much a moving target. If I was to ballpark some figures for you, what we could sell at retail, we’re getting $4 to $5 a gram; what we’re selling as wholesale biomass, so extract-grade product, is closer to $2 a gram these days. Again, with a lot of variability.

James West: Right. All right, here’s a question that – the only question all your investors care about: how soon till you’re profitable?

Keith Merker: Pending the outcome of this outdoor crop, we would anticipate having a very successful Q4. We’re not giving guidance, and so I’m going to choose my words carefully, but a very successful Q4, and pending the quantity and quality of that product, that will carry over into 2020.

With the 18 rooms we now have online in the greenhouse, our forecast would be to achieve a situation where this company is sustainable for the long run, by mid-2020 if not before.

James West: Wow. Okay, so that’s great. I’m reading nothing but doom and gloom and prognostications of the sky falling in the cannabis space, and I know that’s not true. You know that’s not true. We’ve just got a simple case where the speculative market is now expected to deliver a fully mature commercial EBITDA, which that’s not how it happens, and for some reason, the people investing in the cannabis space have forgotten that and have started to jump off of cliffs and out windows. Do you think that the cannabis revenue picture for the whole industry is going to emulate what WeedMD is doing, or would you consider WeedMD an outlier in terms of the level of success you’re going to achieve financially?

Keith Merker: I’ve been saying it for ages, and you can look back into your archives, because we’ve talked about this, in a manner of speaking, before; and I’m a firm believer that, you know, as we hit the end of 2019 and heading into 2020, especially, there’s going to be, quite frankly, a lot of blood in the streets. There’s going to be failures in this industry. Whereas, in 2017, you could throw a dart at the wall or buy the index and you were going to win, these days, you have to be more selective. You’ve got to pick the winners, and you’ve got to select them and select them out of what is going to be a field where there are losers. You can get that, if you’d like.

James West: That would not be appropriate. All right, so, finally, Keith, what is the outlook in terms of production for 2020?

Keith Merker: So we’re going to exit 2019 at about a 50-tonne per annum run rate, with respect to production.

James West: Wow.

Keith Merker: 2020, we have the ability to get to about 150, and this is just from the Strathroy site. And that is a combination of both the outdoor field and the greenhouse. We’re at a position right now where WeedMD has approached this, I think, very strategically. We haven’t gone guns blazing and built out as much, everything that we possibly could from a cultivation standpoint, because as the industry evolves, cultivation becomes less important, only from the perspective of, there was, once upon a time, where square footage or licensed square footage or annual production really mattered to the market.

Right now, what matters to the market is, to your earlier point, show me the money. Show me the revenue, but also, very importantly, show me a cash flow positive, sustainable business. And so we’re running through those iterations right now of whether, given now that we’re in a more limited, capital scarce – I’ll say there’s more capital scarcity than there was back in the good old days, so you’ve got to be more careful how you spend it, how you allocate it across the organization.

So to me, if we’re looking at building out another greenhouse, or allocating it towards making sure that our supply chain is locked down and airtight and super, super successful, I’m probably going to choose that latter portion versus more cultivation at this stage in the game. So we’re running through those scenarios right now as we build our 2020 budget, and if you ever want some real excitement, come drop by the WeedMD war room for budget talk, because it is a thrilling opportunity to see what goes on behind the scenes as sort of the sausage is made when it comes to the company.

So again: we’ve got the opportunity to get to a massive production footprint in 2020, but I think more importantly is that we deliver a profitable company for our shareholders.

James West: You bet. All right, Keith, we’ll leave it there for now. Thanks again for coming in. We’ll talk to you again soon.

Keith Merker: Great to be here. Thanks.

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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