Planned Production
Building production capacity (in Canada) in 2019.. what a joke. It will come online by 2020 (IF LUCKY) when there will be massive oversupply. Look at what the sector leaders are doing, divesting away from growing in Canada and planning production in low cost, more agricultural focused continents/countries like Brazil, Urugay,Colombia..Mexico in the near future now. Aphria will be pumping out 30,000 kg /year by JANUARY 2019 in COLOMBIA alone. They grow at -$1/g in Canada, imagine how low their production cost must be for that in South America.
Risk Mitigation
Who will Supreme be supplying when
a) everyone either has their own production available
b) other LP's with far larger production cap fills the demand (think Aurora Sky, Aphria One, Aphria Diamond, Canopy BC, etc, etc..)
If they were wise they could foresee this and plan accordingly like;
-vertically integrating (Delta9 does this pretty well with retail)
-scouting international supply deals,
- planning international cultivation (Lethoso deal is garbage)
-increase the amount of sku's, strains
- build some IP (genetics ,vape tech, extraction tech, etc etc)
-partnerships with other multi nationals -CPG/beverage/tobacco
Pretty much ANYTHING else than JUST growing "premium" flower.
"Premium"
They put all their eggs in "premium" flower but from an actual consumers perspective if you want top tier product (in Canada) turn to Broken Coast. OCS certainly prices it more of a premium than 7 ACRES $14.40/g compared to $13.70/g. If you are comparing 7 ACRES internationally, Marigold Jamaica blows them out of the water.
"Marigold’s leadership in the cutting-edge science of cannabis cultivation and precision dosing brings added depth and prestige to an already strong team. Marigold’s lead cultivator has won numerous cultivation awards including the prestigious Cannabis Cup an impressive 19 times for its world class, genetically engineered and globally-recognized cannabis strains, including Love Potion #1 and Pink Kush." Guess who owns 50% of that - Aphria
Supreme's seeds arent even their own, its Dinafem's.
Supreme is just a bunch of mediocre farmers, remember the mess their use of Remo nutrients caused.
https://www.newcannabisventures.com/supreme-pharma-bulk-cannabis-sales-launch-slowed-by-health-canada-inquiry-on-nutrients/
In a nutshell, Supreme tried to do one thing really well, and only did an okay job at it if we are being honest.
Manual labour force vs Automation
John has an obsession with growing his employee count as if its a good thing. Every time I see a group photo of Supreme's team they just seem like labourers.
https://www.instagram.com/p/BoNWV_Tlzut/
I can't find the exact video but I recall Fowler bragging about his employee to plant ratio as being one of the highest in the sector, and he accredited this to the quality of Supreme's product.
"The marijuana manufacturer says that 7ACRES is rapidly growing and are looking to hire over 400 employees by January 2019."
https://www.independent.on.ca/site/?q=node/7161
There goes all our profits for Q2..
Vic Neufeld (CEO of Aphria) even called them out on it once. Increased employee count only increases costs, not necessarily an increase in efficiency or productivity. Now compare this to Aphria's approach...
James West: Wow, okay! January/February 2019, what will be the total annual output of Aphria?
Vic Neufeld: Together with Broken Coast our high premium B.C bud, awesome growers they are, we’ll be at 240 000 kilos annually. Give me about four months to get to full crop rotation so by let’s call it May of 2019 we’ll be kicking out 20 000 kilos a month.
James West: Wow!
Vic Neufeld: A month.
James West: That’s incredible.
Vic Neufeld: That’s why automation had to be part of our story because the labor force, what people don’t realize is tremendous unless you bring in automation. We’ve literally cut our F.T.E growth projections in half.
James West: F.T.E?
Vic Neufeld: Full-time equivalence, sorry employees, employees.
James West: Right. Okay so then the main argument for automation besides optimization of floor space is reduction in labor costs?
Vic Neufeld: And speed to market too.
James West: And speed to market.
Vic Neufeld: Absolutely. There’s a lot of efficiencies gain when you don’t have your army of workers going again a million square feet of greenhouse is way down there. If you can save the time where we bring the crops to the processing area and from the cutting stage to veg where we bring the benches from that centralized area out into these greenhouse fields, we’re saving a lot of time. It’s efficiency at the same time.
But it’s more than that. It’s how these tables turn depending on seasonality, sun, time of day. Everything is computerized. The automation, James is beyond belief. I just can’t describe. We’ve had a number of groups now, significant investor institutions flying in to beautiful little Leamington airport by the way.
To sum it up, James West who has been interviewing Supreme for several years now, also shares the same disappointment with them.
James West: Somebody just informally observing the market would likely be a little bit critical of the fact that Supreme really hasn’t caught the wave that has taken a lot of these cannabis companies, some would say with lesser operations, you haven’t been taken into the $1 billion, $2 billion range yet.
One more comment from Vic, tell me what company comes to mind when you read this.
"There’s been a lot of press releases by many, many licensed producers about their abilities to grow; they’re funded, this is their plan, they’re building but now grow it. Grow it without crop failure, grow it to what we call “quality harvest”, that’s both in our definition grams per plant, per square meter and the potency; THC and CBD. Prove it. I can tell you that in January, in that window of time we will be there to really service the underperformance of whatever LPs have failed to live up to their commitments, province by province."