Ascent Industries Corp . (CSE: ASNT) is a new cannabis listing, meaning a ground-floor opportunity. But this is a Company 
that already has deep operations, having been producing sophisticated cannabis products since 2014 For many investors, that will be the most important message of this article.
However, when the management team of ASNT sat down in the Stockhouse boardoom, they wanted to talk strategy. This cannabis company has already assembled diverse, vertically integrated operations, targeting some of the best current opportunities in the cannabis space. But the focus of CEO Philip Campbell is just as intent on the future as the present.
The Company’s Co-Founder elaborates further.
“The cannabis industry is evolving rapidly in multiple jurisdictions, which necessitates a strategic, nimble and adaptive approach to each market. Understanding the many differences between them allows us to develop an optimal strategy for each market, ensuring strong returns for our shareholders. Our experience enables us to use our learnings from one market and apply it to other markets. For example, our retail experience in the US will pay dividends in Canada as the Canadian systems transition to a recreational and retail system. This experience has made us specialists in overcoming regulatory hurdles and using those learnings to be more effective and efficient with regulatory affairs.”
Today, Ascent is a “vertically integrated” cannabis company. But tomorrow, ASNT anticipates becoming a specialist, focusing the critical verticals necessary to make and sell high-margin cannabis products: product development, branding, distribution, and regulatory efficiency. What won’t change is Ascent’s global commitment.
Cannabis is an evolving industry. After nearly 100 years of cannabis Prohibition, a new (legal) sector is growing from scratch. This means the one “constant” in the cannabis sector today is change.
From an operations standpoint, as this sector matures, what are the best opportunities to capture margins and market share today will not necessarily remain the best paths for growth tomorrow. It makes sense to be prepared to adapt to this evolving operational landscape.
Equally, cannabis is a sector that is still in the infancy of being fully opened up (legally) for the enormous commercialization opportunities that investors can already see on the horizon. From a regulatory standpoint, the cannabis sector is even more immature. It makes sense to be prepared to adapt to this evolving regulatory landscape.
This is the Ascent Philosophy.
From a tactical standpoint, Ascent’s operations are currently tailored to optimize both growth and bottom-line performance in each jurisdiction in which the Company is active. This not only means taking a different approach to its Canadian operations versus its United States operations, it means customizing operations in each individual U.S. jurisdiction.
In Canada, the cannabis sector has been evolving (more or less) on a national level. In the U.S., cannabis markets have been opening up on a state-by-state basis, with no two jurisdictions having an identical set of playing rules. This means that what works best in one state won’t necessarily work best in the state next door. In general terms, the Ascent game plan is simple:
- Identify the most promising current operational opportunities.
- Design an operational plan that allows maximum efficiency today, while paving the way for robust growth tomorrow.
- Execute.
It’s not as easy as it sounds.
In speaking with Stockhouse Editorial, two phrases cropped up several times in the vocabulary of Ascent’s management team: “knowing our markets” and “understanding our consumers”. This is a function of detailed research, careful planning, and experience in the cannabis space.
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As noted earlier, Ascent sees the greatest future opportunities in the cannabis sector in the products/retailing side of the industry. CEO Campbell laid out the dynamics to Stockhouse.
Cannabis is now both a commodity and a product. As a commodity, cannabis is cultivated and grown by farmers. As a product, cannabis can be developed, branded, licensed, and retailed in virtually an infinite number of forms by cannabis products companies. Then Campbell offered an analogy:
In the beer industry, farmers grow the hops (and wheat and barley) that are the primary ingredients in beer. The breweries (now “beverage companies”) manufacture, license, and sell beer. The CEO’s open question to investors was simple: in which side of this industry do the greatest commercialization opportunities exist?
Ascent is currently pursuing this strategy of developing a wide assortment of high-margin cannabis products and simultaneously working to open up markets for these products as aggressively as possible. However, to do this efficiently – today – the Company realized that it also needed to incorporate cultivation operations. CEO Campbell explains further.
“In the Canadian adult-use market, we believe there will be a shortage of flower and trim for the first 12-24 months. This made it essential that we acquire our own reliable supply of input materials for our manufactured products. As the market matures and supply outstrips demand we intend to transition to becoming a net purchaser of input materials to supply our industrial extraction and manufacturing of high-margin products.”
This leads to the distinction between strategy and tactics. A strategy is our overall plan to achieve an objective. Tactics are the day-to-day adjustments we make in order to execute on our strategy more effectively.
Ascent’s strategy is to develop, produce, and market a wide assortment of high-margin cannabis products (for a global marketplace). It’s tactics, today, are to incorporate cultivation operations – where appropriate – in order to pursue its primary strategy with the greatest efficiency and success.
Has the Ascent game plan been a good plan? In fact, on both sides of the border, events have unfolded in a manner very similar to management’s projections.
Canadian operations
In Canada, ASNT saw a near-term shortage materializing for dried cannabis. Without cultivation capacity, this would drive up the input costs for its cannabis products, and “high margins” would become average, or even low. The Company began its planning for cultivation capacity well ahead of this projected squeeze. Currently, Ascent’s Canadian operations have three components.
- Agrima Labs
- Agrima Botanicals
- Agrima Meadows
In keeping with the Company’s mantra of efficiency, these three separate Greater Vancouver-area facilities are located within the span of a 15-minute drive from Head Office and each other.
Agrima Botanicals was the starting point for the Company’s Canadian operations. This is a 25,000 square foot combination facility, with both indoor craft cultivation operations (annual capacity: 2,000 kilograms dried flower) along with cannabis extraction and oils production capacity (annual capacity: 1,500 kilograms of extracts/formulated oils). The facility has been operational since 2011. Agrima Botanicals has both an ACMPR cultivation and oil production license (LP) as well as a CDSA Dealers License (LD).
Agrima Meadows will be Ascent’s primary Canadian cultivation facility – for as long as management sees value in maintaining full vertical integration in its operations. The Company is currently retrofitting 600,000 square feet of existing newer greenhouse facilities, estimated to be ready to launch cultivation operations in Q1 2019. The annual cultivation yield projects to 60,000 kilograms per year.
Agrima Labs is arguably the current lynchpin of Ascent’s Canadian operations. Phase One is built out to 20,000 square feet, and plans are currently being developed to expand to a total of 40,000 square feet, with completion for Phase 1 projected for Q4 2018, and Phase Two projected for 2019.
Agrima Labs will be a pure production facility, in addition to the laboratory infrastructure for product development and research. Its annual production capacity is 6,000 kilograms of extracted and formulated oils. Along with this is a Commercial Kitchen.
A “commercial kitchen”? Ascent intends to penetrate all of the most lucrative niches for cannabis products. In Canada (for the moment), these products are limited to cannabis oils and derivative extracts. In the U.S., where adult-use cannabis is legal in several jurisdictions, cannabis-infused edibles are already claiming significant market share.
[Stockhouse readers should stay tuned for an upcoming feature on the Company: What’s Cooking in Ascent’s Cannabis Kitchens?]
While official legislation has not yet been tabled in Canada to address this dimension of the sector, both industry analysts and cannabis companies are expecting a similar market for cannabis-infused products to become a reality in Canada. Ascent wants its line of Canadian infused products to already be developed in anticipation of this opportunity.
The Canadian operational plan was in place. The strategy was sound. What threw a (temporary) wrench into operations were delays in Health Canada’s ACMPR licensing process for the Company’s initial cultivation license.
With no certainty on the date for this licensing (Ascent was ultimately awarded its Agrima Botanicals cultivation license in Q4 2017), the Company immediately began expediting its plans for U.S. expansion.
U.S. operations
The Company currently sees several U.S. jurisdictions as being ripe for penetration. The first two markets it selected were Oregon and Nevada (Las Vegas). Superficially, these markets are very similar. Both states are fully opened up to medicinal cannabis use and both have been among the early leaders in the U.S. in legalizing “adult use” (recreational) cannabis. But there is also a key distinction.
Oregon has a low threshold for cannabis cultivation licenses, and no overall ceiling on total licensees. In contrast, Nevada has much more restrictive requirements for cultivation licenses. The end result, in Oregon, is an explosion in the number of licensed cultivation operations, creating a large glut in supply. Nevada has seen opposite dynamics in its cultivation industry, reporting shortages of supply.
Ascent’s management saw these fundamentals playing out in these two states – and they planned for them. ASNT’s Oregon operations are purely production focused. By only operating on the value-added side of Oregon’s cannabis industry, the glut in the supply of dried cannabis works in the Company’s favor, allowing very strong margins on its product lines – the same product lines sold in all other jurisdictions Ascent operates.
In Nevada, with less cannabis supply (and higher wholesale costs for dried flower), Ascent immediately committed itself to adding a cultivation operation. With Sweet Nevada (unlike Oregon), vertical integration is the key to preserving strong margins. Both its Oregon and Nevada operations also boast Commercial Kitchens.
Producing value-added products will not be limited to cannabis oils and edibles. Moving into large-scale production of cannabis vape-pens, gel-capsules, tinctures, and “pre-rolls” is a high priority.
That’s Ascent’s strategy for cannabis success in North America, today. Tomorrow, international markets beckon. Europe is presently following in the footsteps of North America in terms of the normalization of cannabis. The Company is in the early stages for EU expansion, with an international office established in Copenhagen, Denmark, and two license applications already submitted there.
Thinking globally. Acting tactically. Ascent Industries is focused on long-term success. To achieve that success, the Company is taking a pragmatic approach in market penetration and expansion – in a new sector where the ability to evolve is a key, competitive advantage.
www.ascentindustries.com
FULL DISCLOSURE: Ascent Industries Corp. is a paid client of Stockhouse Publishing.