On July 29, Pasha Brands (CRFT.C) announced that its 100% owned subsidiary, BC Craft Supply, has signed a supply agreement with Canada’s first licensed micro-cultivator applicant, Hearst Organic Cannabis.
To understand why this is important, it’s worth reviewing cannabis market predictions from August 2018 – prior to legal recreation in Canada.
- A new category of the cannabis users will be created (true).
- Adoption in the medical community will increase (true).
- Branding will become very important (true)
- Demand for organic cannabis will explode (true)
- Cannabis extracts (like CBD) will feed into the edible markets (true)
- The black market will be eliminated (nope).
In January 2018, Statistics Canada estimated that 90% of the weed sold in Canada was from illegal sources. By May 2019, Statistics Canada’s National Cannabis Survey, covering the first quarter of 2019, estimated that “38% of Canadian pot consumers continue turning to the black market.”
“It just comes down to dollars and cents,” Jonathan Hull told CBC. “An ounce on the streets is going for about anywhere from a $160 to $180, and in [licensed shops] you’re going to be paying $260 to $280.”
Statistics Canada collects “user submission data” but also obtained 423,000 prices from illegal online cannabis retailers. Using this dual methodology, the government agency says the average price per gram of dried cannabis was $8.44 in Q2, 2019, down from $8.61 in the first quarter.
“There’s compliance costs that legal cannabis producers have that the illicit market doesn’t have to worry about,” stated Brad Poulos, a management professor at Ryerson University. “There’s an excise tax built in [for the legal growers]. Then, depending on the province, there’s GST and HST on top of that. Add it all up and there’s quite a cost disadvantage.”
For the Canadian government, this is a double slap in the face. First, it’s making a mockery of the licensing process. Secondly, the government is losing out on hundreds of millions of dollars of tax revenue.
To address this issue, Health Canada opted to create a micro-licensing program for small mom-and-pop growers who cannot afford the costs of an MMPR application or are unable to pass inspection due to a colourful past with law enforcement.
Pasha Brand’s BC Craft Supply acts as a service provider to small farmers under the Health Canada license category known as Micro Cultivator.
In the podcast below, Chris Parry speaks with Patrick Brauckmann, Pasha Brands MD, to get a run-down of the company, and a window into what investors can expect over the next 12 months.
In exchange for a cannabis supply agreement with a micro cultivator, BC Craft assists the applicant in receiving its licence with Health Canada and provides a whole host of services ranging from quality assurance to the marketing of its cannabis products in Canada’s provincial and territorial markets.
Across Canada, there is an army of talented micro-cultivators (often single-family operators) who are tired of going to PTA meetings and lying about their profession.
Pasha plans to bring them in, out of the cold.
Hearst Organic Cannabis will supply BC Craft with its ongoing production to be sold as dried flower. BC Craft will process and package this flower before it is destined for licensed retailers.
“Building Hearst and receiving my Health Canada licence has been a challenge, but I’m encouraged by the high demand for craft products,” stated Joël Lacelle, Founder of Hearst Organic Cannabis. “I’m proud to partner with the team at Pasha and BC Craft as they have clearly demonstrated their passion for supporting all craft cannabis producers in Canada.”
Each micro cultivator in Canada will be able to produce approximately 500 kg of cannabis per year. Canada has tens of thousands of craft producers operating in the illicit cannabis market and BC Craft is focused on helping as many small farmers transition into the regulated market as possible.
If you are curious where this artisanal product trend is going, have a look at the beer industry. In the U.S., 2018 craft beer sales increased 7% to $27 billion, and now account for more than 24% of the $111 billion U.S. beer market. Meanwhile, sales of fermented urine (Budweiser, Molson) dropped 1%.
Given the endemic counter-culture instincts of younger cannabis consumers, we anticipate a similar trend away from corporate brands towards small, hand-made, high-quality agricultural products.
“Joël and his team started with a shovel and navigated the licensing process in just over nine months,” stated Jason Longden, CEO Pasha Brands. “They represent the first truly craft producer to be licensed as a micro-cultivator in Canada, the first of many BC Craft intends to bring to market, so this agreement is historic.”
The folks at Visual Capitalist have employed their considerable talents to summarize the business objectives of Pasha Brands.
Hearst Organic Cannabis will plant its first legal crop in August 2019 and harvest later in the fall.
– Lukas Kane
Full Disclosure: Pasha Brands is an Equity Guru marketing client.