Inner Spirit Holdings Ltd (CNSX:ISH) Largest Cannabis Retailer in Canada
Inner Spirit Holdings Ltd (CNSX:ISH) CEO Darren Bondar joins Midas Letter to discuss his nomination as ‘Entrepreneur of the Year’ award at the Lift Awards which represents all entrepreneurs who are franchise partners in the Spirit Leaf team. Inner Spirit currently has the most number of cannabis retail stores in Canada with 37 locations open today with further developments expected in the future. Ontario rulings allow for a maximum of 75 locations per retailer or per brand. Inner Spirit has their sights set on expanding to the total allotment amount of 75 stores. The CEO also discusses the company’s franchise model and its advantages in terms of acquisition in the wholesale market, the company’s most popular products and how the company will evolve with Cannabis 2.0.
James West: Inner Spirit Holdings CEO Darren Bondar joins me now. Darren, welcome back.
Darren Bondar: Yeah, thanks for having me back.
James West: You bet. Darren, you’re up for Entrepreneur of the Year award tonight at the Lift Awards, I understand, the Canadian Cannabis Awards. Tell me how you got nominated, and who are your competitors.
Darren Bondar: Yeah, well, I’m not totally sure how I got nominated, but really excited about it. I think what’s kind of cool is, you know, I represent all the entrepreneurs who are franchise partners in Spirit Leaf, so, you know, going to win that one for this crew, and –
James West: The team.
Darren Bondar: Yeah. And, but, terrific to be nominated amongst, you know, a bunch of other accomplished entrepreneurs.
James West: Sure, you bet. The Canadian Cannabis Awards, this is their third year?
Darren Bondar: I’m not sure. Three or four, yeah. It’s going to be an exciting night.
James West: No doubt. Okay, so, many people don’t know that you’re actually the largest retailer in all of Canada in the cannabis space.
Darren Bondar: Yeah. We’ve got the most number of stores now. I mean, last time I was here, I think it was a dream, really; we had maybe four or six locations going, and supply issues which were preventing the growth. But since Alberta has opened up licensing, we’ve really been able to execute on our plan, and we’re a national retailer, with stores in BC, Alberta, Saskatchewan, and one here in Ontario. So, with 37 locations open today, and a bunch more in the pipeline before the end of the year. We’re the largest retailer by footprint, so that’s a nice feather in our cap. We get to be in the bull position.
James West: You bet. The market for franchises for locations is supposed to get bigger in Ontario. Under the Rob Ford government, supposedly, we’re going to have – sorry, Doug Ford government. Freudian slip, there. We’re supposedly going to have the market open up and the lottery system will come to an end. How many stores would you like to open in Ontario, if that happens?
Darren Bondar: Sure, good question. So the max is 75 locations per retailer or per brand, and our objective will be to open the entire 75 stores. We’ve already got over 20 franchise partners ready, and some locations fully built out and ready, and I think that’ll be the biggest catalyst, really for not only retailers but the entire Canadian cannabis market needs Ontario to open up.
James West: So, does the franchise model give you any price advantages in terms of acquisition in the wholesale market?
Darren Bondar: In various jurisdictions, you really can’t have that kind of competitive nature, but it gives us other, you know, other opportunities through, like, our point of sale systems and supply savings. And collectively, our franchise partners, you know, we’ve been able to build a national brand. So there’s a lot of good synergies and benefits that come as being a franchise system.
James West: Do you anticipate a huge uptick in consumption with the introduction of edibles and other associated products?
Darren Bondar: We do. You know, Cannabis 2.0 is really going to be something else. I mean, to have a base of 40-plus stores going into that, into 2020, where the sales and performance is already really good, and then to introduce a whole new product line on top of that, which is really exclusive to the cannabis market, is going to be incredible. So we expect quite a significant uptick, and increase in basket size, and more new consumers who maybe are adverse to smoking now have beverage options and edible options.
So, I think it’s going to be really good for our company, and for the industry as a whole.
James West: Do you find that customers who are Spirit Leaf customers in Saskatchewan are also, seek out Spirit Leaf brands, the store branded, in BC?
Darren Bondar: I think so. Look, we’re getting more and more known, and we served over 110,000 customers in the month of October. So yeah, customers are really, the brand is resonating. We’ve got a great group of customers, and yeah, I think there’s brand familiarity, and you’re seeing customers saying, hey, look, I’m going to drive past this store to go to this store because, you know, because we’re getting a better experience, and that’s key to retail success.
James West: So, what’s the favourite product among all your consumers at this point?
Darren Bondar: Sure. Well, Blue Dream is for sure continues to be the most popular strain, and customers really like pre-rolls. It gives them the opportunity to try a new strain, you know, without a big commitment. So we are selling, you know, majority flower, but we continue to see an uptick in pre-rolls format.
James West: Sure. What is it about Blue Dream that everybody loves so much?
Darren Bondar: You know, it makes you feel good and creative, and yeah, there’s something about the strain that really resonates across the country.
James West: Hmm. I’m going to have to grow that in my home garden, next.
Darren Bondar: Highly recommended.
James West: Do you see the future of cannabis in Canada, like, what percentage of the population do you think is going to resort to growing their own over time? Or do you think there’s always going to be a, you know, I grow some at home, but when I’m out on the road, I also go buy from stores?
Darren Bondar: Yeah. I think that the majority of the population, probably 99 percent, is a consumer. I mean, you can go and make your own alcohol, but for the convenience of it, you know, consumers still like a liquor store. And I think the same will apply to cannabis. There’s always going to be that grower, but they certainly also come to our stores to try something different or try what other strains that might be available.
James West: Right. What province do you find the most challenging in Canada to do business in?
Darren Bondar: Well, obviously Ontario, right? Nobody can build a business plan around a lottery system. So, once Ontario opens up, I think it’ll be a whole new ball game. You know, big props to Alberta and Saskatchewan for really implementing business-friendly models that have allowed us to create a beautiful base. Saskatchewan just opened up their market for 2020, so it’ll no longer be a lottery. So we see a lot of opportunity there as well, and we hope Ontario follows suit.
James West: Does Quebec raising its consumer minimum age to 21 pose a threat to your ability to do business in Quebec?
Darren Bondar: Well, we can’t do business in Quebec anyway, because it’s all government-owned stores.
James West: Oh, okay.
Darren Bondar: It actually just fuels more people coming across to Ontario, right? So yeah, I mean, Quebec’s got their own thing going.
James West: So who – in which provinces have, right now, are government stores only?
Darren Bondar: I think primarily Quebec and some of the Eastern provinces.
James West: Oh, okay. Huh. That’s odd. I know that Newfoundland was allowing people to open up, like, a edible – or, a cannabis store next to a liquor store, which I thought was, well, there’s the wild East, now.
Darren Bondar: Yeah, yeah.
James West: Okay, so where do you see the most growth happening across Canada for retailers of cannabis?
Darren Bondar: Well, we still have some opportunity in Alberta. There’s currently a license cap of 42, and we’re a handful of stores away from achieving that. So through Q1 of 2020, Spirit Leaf will, you know, we’ll reach the maximum in Alberta. Then we’ve got Saskatchewan to focus on, and once Ontario opens up the system, that’s obviously where the hotbed of activity is going to be.
We’ve got our offices here, locations ready to go, and a good franchise network. So everybody is holding their breath for that important announcement for the industry.
James West: Sure. Do you see at any point expanding your business model to ex of Canada, United States, Europe?
Darren Bondar: Yeah, currently we’re focused on the Canadian market. It’s difficult, with all the Federal, you know, legislation in the US to expand retail there, but for sure, we have our eye on it. Our licensing model is, you know, is definitely appealing to be able to do it through the US market. But for now, we have lots to do in Canada and a lot of growth to focus on.
James West: Sure. How does your franchising model work, exactly?
Darren Bondar: Yeah, it’s actually a typical franchise system. So you’ve seen great success in, you know, in chocolate and coffee and in fast food. So a franchise partner pays us a franchise fee of $25,000 upfront, and then there’s an ongoing royalty of 5 percent plus 1 percent that gets contributed to the fund on gross sales.
James West: I see. And so then, do you provide guidance on, like, store decorations and everything?
Darren Bondar: Yeah, everything from marketing to best practices to point of sale to consumer engagement training. We really provide the full service to ensure, help ensure, our franchise partners are successful.
James West: I see. And in terms of sourcing what goes on your shelves, do you have preferred partners that you work with?
Darren Bondar: Well, so we’ve got some great investors with Auxley and Tilray and HEXO, who are also strategic partners, but our franchise partners really, I think the beauty of the model is, they know their local customer. They know what that customer wants better than a computer screen or data can tell you, so they really have the ability to purchase cannabis that works best for their local customer, but they also have the benefit of our system-wide data which they can see in real time to say Hey, Blue Dream is a great top seller, let’s make sure we don’t have that in stock.
And then, you know, they layer on. On top of that, we’ve got an amazing array of Spirit Leaf accessories and other accessories that we carry to really create a consistent brand across the country.
James West: Sure. HEXO came out with their Original Stash brand that is $4.49 a gram, or as cheap as $4.49 a gram.
Darren Bondar: Yeah, yeah. So they just launched it in Quebec to start, but yeah, the $125 an ounce is what we’re going to be selling it for. We’re anxious to get it on the market; I think it’s going to be really great to help stamp out the illicit market, and yeah, 125 an ounce is a terrific price.
James West: Sure. Have you got customers asking for it at this point?
Darren Bondar: We haven’t quite heard, because it’s really new, so I think this will probably be part of that, you know, I think this will create some buzz. But yeah, I think it’s going to be a strong seller.
James West: Do you think that this is going to force all of the other LPs to have a low-priced product, as well?
Darren Bondar: I don’t necessarily think so. I mean, everybody’s got their own strategy for launching products. There’s already some other good value options out on the market with Cannica, and they’ve got the Batch, so your sub-$5 a gram.
James West: The Batch?
Darren Bondar: Yeah, it’s called The Batch. So it’s a really cool kind of entry-level product.
James West: Who makes that?
Darren Bondar: Cannica and Tilray.
James West: Oh, okay.
Darren Bondar: Yeah, yeah. It’s part of the High Park family.
James West: Oh, interesting.
Darren Bondar: So yeah, we know you’ve got everything for, you know, something for everybody. Somebody who wants that kind of $5 gram, but also somebody who wants the $10 to $15 kind of specialty gram and tries something new.
James West: The champagne instead of the $2 chuck.
Darren Bondar: The champagne, exactly.
James West: All right. Darren, that’s an awesome update. We’ll leave it there for now, we’ll come back to you soon. Thanks very much for joining us again.
Darren Bondar: Sure, yeah. Appreciate it. Thanks a lot for having me.
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