Breaking Records: Cannara Biotech Inc. Unveils Explosive Growth And Profitability In 2023!

Benzinga

Cannara Biotech Inc. (TSXV: LOVE) is a vertically integrated producer of premium‐grade cannabis and cannabis‐derivative products for the Quebec and Canadian markets

Transcript

00:00 (upbeat music)

00:02 - One thing that we love to do here at Benzigna

00:04 is to talk to executives from publicly traded companies,

00:06 especially in this industry.

00:08 Today, we've got a great interview with Nick Soziak,

00:10 who is the CFO of Canara Biotech.

00:13 Ticker on the TSXV market is L-O-V-E.V.

00:17 Ticker on the OTCQB market is L-O-V-F-F.

00:20 And the ticker on the Fankfurt Stock Exchange is 8C-B.

00:23 Nick, thank you so much for joining me.

00:25 - Thank you for having me.

00:26 - Absolutely.

00:27 Look, like I mentioned, man,

00:28 there's a lot of people focused in this industry,

00:30 so there's a lot for us to get into

00:31 and look under the hood.

00:32 But before we do all that, explain it to me,

00:34 like on five, what is it that your company does?

00:36 - Absolutely.

00:37 We're Canara Biotech.

00:38 We're a Quebec-based, vertically integrated,

00:40 licensed producer of premium grade cannabis

00:42 and derivative products for the Canadian cannabis market.

00:46 We have actually two owned mega facilities,

00:49 which span over 1.6 million square feet,

00:53 focused on cultivation and delivering

00:56 premium grade cannabis across Canada

00:58 at a really competitive price.

01:00 - Now, we mentioned how this is such an interesting market.

01:03 It has been for years and years and years.

01:05 How are you able to kind of deliver high-end cannabis

01:08 at competitive prices while still maintaining your margins

01:11 and staying profitable?

01:12 - It's been since 2018,

01:14 we've been working on creating the Canara platform.

01:16 And really, we've created two unique characteristics

01:20 of our Canara platform that really allow us

01:23 to achieve what you just asked, right?

01:24 Delivering premium quality products at affordable prices

01:27 so we can disrupt the market.

01:29 And those two things are, one, being based in Quebec.

01:32 Quebec has the lowest cost of electricity and labor

01:36 and utilities across the country.

01:38 And that so happens to be the largest cost inputs

01:42 of cannabis cultivation.

01:44 So we are able to create quality cannabis,

01:47 focus on quality and additional quality metrics

01:50 that other licensed producers cannot focus on,

01:53 put those costs, incur those costs,

01:56 but leave out with a 35 to 45% gross margin

01:59 and deliver profit and operating cash flows.

02:02 The second important thing, like I mentioned,

02:05 is our two mega facilities.

02:07 Our recent facility, which we acquired in 2021,

02:10 we acquired it for $27 million.

02:12 This facility was built by one of our competitors

02:15 for over $250 million.

02:18 So the cost savings of carrying that facility

02:21 as we turn on and start producing more and more,

02:25 we're only about 35% of our total output right now.

02:28 So we've got a long road ahead of continuing scaling

02:31 at our facility, but having that facility

02:33 at such a low acquisition costs,

02:35 again, allows us to deliver those cost advantages.

02:38 - I love the fact that you mentioned

02:39 that you have lower electricity

02:41 and the resources just cost less in the Quebec region.

02:43 'Cause it's kind of like, hey,

02:44 the physical cost of goods sold

02:45 might be the same across the country,

02:47 but you've got a bit of an advantage

02:48 to save those basis points there as well.

02:51 Now, let's talk about your Q3 financials,

02:53 which showed a 96% increase in revenue year over year

02:56 and 30% of Q quarter over quarter.

03:00 How are you achieving this sort of growth?

03:02 Like when did you expect it to kind of level out?

03:04 Now, I know you mentioned the competitive advantages

03:06 that you have, but what else is there to the story?

03:08 - Honestly, we're just getting started.

03:10 We launched in 2021 in Quebec,

03:12 only Quebec, the only Quebec in Canada.

03:15 And we started, you know,

03:18 we quickly climbed to being third largest producer

03:21 in that province with an 8.8% market share.

03:24 Just last year, when we acquired our Valleyfields,

03:27 we started producing and scaling it up.

03:30 We had enough production to start scaling

03:32 in the rest of the markets of Canada.

03:35 So about a year and a half ago,

03:36 we scaled into Ontario, BC,

03:39 and just in May of 2023, we scaled into Alberta.

03:42 We're only in those five main provinces right now,

03:46 as well as Saskatchewan.

03:47 There's still many markets to go

03:49 and international markets to explore.

03:52 But because we focused on quality at affordable prices

03:57 and really targeting consumer wants in the cannabis market,

04:01 our products are flying off the shelf.

04:05 So we're just seeing continuous quarter over quarter

04:08 market share growth across every market.

04:10 Alberta in May of 2023, when I launched,

04:12 I was 0.1% market share.

04:14 I'm now 2.3% market share in three to four months

04:18 since our launch.

04:19 We've launched over 70 SKUs, unique SKUs in 2023.

04:24 And just from August in our fiscal 2023,

04:27 from August till December of calendar 2023,

04:30 I have another 40 SKUs to launch.

04:32 So what we've done here is really a crawl, walk, run approach

04:37 really, you know, probably yet a running phase right now,

04:41 but we've taken a much slower approach,

04:43 focus on building a sustainable business,

04:45 focus on the quality of product,

04:47 validate that in the Quebec market,

04:49 and then start scaling it into other markets.

04:52 So, you know, expect this quarter over quarter

04:56 to continue to increase.

04:57 We're only 35% production capacity right now

05:00 of our potential output.

05:01 So, and everything's organic.

05:03 So as soon as I see demand escalating

05:06 and we don't have enough production,

05:07 we just turn on a new room and turn on more production

05:10 and we don't have to buy cannabis or, you know,

05:13 rely on the market and have that quality inconsistencies

05:16 that a lot of our peers have.

05:18 So having that full control, being able to scale market

05:22 is really the key to us.

05:24 So we're gonna see quarter over quarter growth.

05:27 And what's really, really interesting is like,

05:30 all up until that this year,

05:32 we've spent very minimal dollars in marketing

05:35 to the point where I don't have any in-store display

05:39 across Canada.

05:40 So there's absolutely no retail display

05:43 inside any retail shop in Canada that we've provided.

05:48 Everything has been organic and word of mouth.

05:50 And, you know, we still have that toolkit

05:52 to continue progressing with.

05:54 - I'm surprised you don't have any fat heads

05:56 in the retail stores, but I'm sure that'll drive sales

05:58 when you do roll that out.

05:59 Something that stuck out to me is that you mentioned

06:01 you have 70 SKUs at the moment,

06:02 and I believe you said you're planning on rolling out

06:04 about 40 additional in the future.

06:06 How do you make sure that you're not having a surplus

06:09 in terms of inventory with almost 100,

06:11 and what is that 130 SKUs that might be coming up ahead?

06:15 - Yeah, so it's really creating our brands

06:18 and creating the product portfolio within our brands

06:20 that utilize the full plant.

06:23 So because we cultivate and we have access

06:26 from the biomass of the plant,

06:29 we're able to, the A buds, the top of the plants,

06:32 the bottom of the plants,

06:33 we're able to use the entire plant either in dry form

06:36 or as well before it's harvest,

06:38 freeze it and use it for extraction and other processes.

06:41 So we have three flagship brands,

06:43 it's Tribal, Nugs and Orchid CBD.

06:46 And we basically, our objective as Canara

06:50 is to find genetics in the market,

06:53 find unique and exclusive cannabis genetics,

06:56 and that's what really propels our SKU count.

06:59 If we do our job well on finding exotic genetics

07:03 that consumers want and get excited about,

07:06 well, one genetic can turn into 20 to 30 different SKUs

07:09 across all different categories.

07:11 So what's important here and what we're focused on

07:13 is genetics, and we have a collaboration

07:17 with Exotic Genetics, a breeder in Washington

07:21 who helps us really learn about these exclusive genetics

07:25 and work with us to really improve

07:27 and dial in the quality of cannabis that we're looking for.

07:31 And that's what we, the results are,

07:33 a lot of customer appreciation and brand loyalty in cannabis

07:36 which is so far non-existent.

07:39 - Yeah, I mean, it's so important to just make sure

07:40 you don't have too much of an inventory

07:42 because then that's cashflow and that's opportunity costs

07:45 that you could be deploying that cash somewhere else.

07:46 Last one for me, what do you think is so unique

07:50 about the Canadian cannabis market?

07:52 And what do you think is kind of like the key

07:54 to its long-term success?

07:55 Is it something that the government can do?

07:57 Is it something that the private sector needs to do?

07:59 What are your thoughts in terms of unlocking

08:01 more potential in this space?

08:03 - Yeah, it's definitely a highly regulated environment.

08:07 It's extremely competitive, it's cutthroat, right?

08:09 Everyone's trying to survive right now.

08:12 They're reducing prices, they're just trying

08:14 to grab revenues.

08:15 Canaro, we really built a platform.

08:19 We're building a sustainable business.

08:21 It's our 10th quarter of positive adjusted EBITDA.

08:24 We're in positive operating cashflow.

08:27 We have net income.

08:28 So we're here to stay.

08:31 And I think really licensed producers need to focus

08:36 on the current market, not rely on things to change, right?

08:42 We need to make your business work in the current market.

08:45 And then after that, if things change,

08:47 your business will thrive even more, right?

08:50 So if we can operate in this highly regulated environment,

08:54 I'm excited for excise tax reform.

08:57 I mean, we're paying 30 to 33% of our total revenues

09:02 in excise tax.

09:03 The edible category, lifting the restrictions

09:07 on edible category, the marketing restrictions.

09:11 There's definitely a lot I'd like to see in the future,

09:14 but I'm also excited just to keep it status quo

09:19 because we're one of the few ones growing

09:24 and doing extremely well in this regulated

09:28 and competitive market.

09:29 And I'm okay for it to last longer

09:32 and just continue to thrive in this setting.

09:34 - Yeah, I feel like the one downside

09:36 to having such regulation is that you are kind of limited

09:39 in what you can do and how fast you can do it.

09:41 But the upside of it is that there are a lot

09:43 of regulatory things that companies need to pass

09:45 and make sure you get the best of the best

09:46 in terms of quality product and all that,

09:49 especially in this type of sector.

09:50 But Nick, thank you so much for hanging out

09:52 with me today, man.

09:53 - Oh, it was a pleasure, Zainab.

09:54 Thank you very much for having me.

09:55 - And that's Nick Soziak, who is the CFO of Canera Biotech.

09:58 For all things finance, check out benzinga.com.

10:02 (upbeat music)

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