An innovative Canadian company has entered the competitive cannabis retail space – a company that definitely dances to the beat of a different drummer.
Enter stage left – Westleaf Cannabis – a soon-to-be TSXV-listed, vertically integrated cannabis company focused on innovative retail experiences, engaging cannabis brands, and premium cannabis production. On October 5th, 2018, the Company announced a proposed reverse takeover (RTO) transaction with IGC Resources Inc. (TSXV: IGC.H) and on December 4th, 2018, announced the closing of the associated subscription receipt financing of $20 million. For investors, this represents big news moving forward into the public financing phase of the company.
In conversation with Stockhouse Editorial, company Co-founder, President and CEO Scott Hurd had this to say about the public raise:
“As like many companies the desire to go public is really designed to broadcast the story to a larger audience and utilize that vehicle to access deeper pools of capital while ultimately funding the growth of our business…to fund what we hope will be a series of M&A opportunities early in the history of our public trading.”
Prairie Records: Feel the Beat
The Federal Cannabis Act, which took effect on October 17th, 2018, sharply restricts the packaging and advertising of marijuana. It requires the packaging of cannabis products to carry mandatory health warnings and prohibits any claim of health benefits or any images or graphics on packaging beyond a brand name. Because of that, Westleaf has taken a completely ‘thinking-outside-the-box’ approach to its retail operations.
When you hear the words ‘Prairie Records’ maybe the first thing that comes to mind is another bone-chilling cold snap in Saskatoon or classic rock tune from Winnipeggers the Guess Who or Neil Young. But there’s a new tune being played in Canada’s heartland that promises to mix two different grooves.
Prairie Records is “a one-of-a-kind retail concept that merges the instinctual tie between recreational cannabis and music”. It has been created to let consumers “hit the high notes” through a unique, sophisticated, and immersive environment that replicates an iconic, yet contemporary record shop. Both first-time users and cannabis connoisseurs will find a space that is inclusive and welcoming with curated playlists of both the consumable and auditory kind.
And the Company says that they’re 100% committed to making Prairie Records the preeminent cannabis retailer in Canada.
How? It’s all about a differentiated approach with tactile in-store branding and consumer engagement. The Prairie Records business model is also built on the foundation of opening premium retail locations in densely populated neighborhoods, iconic locations in urban markets, and tourist resort destinations – like the former Palace Theatre in Calgary with foot traffic of over 55,000 people per day – in areas associated with experiences such as shopping, dining, and entertainment. Prairie Records also plans to launch in Warman, Saskatchewan in January 2019, including an e-commerce platform to serve the entire province of Saskatchewan. The Company plans to open between 20 and 30 stores by 2020 across British Columbia, Alberta, and Saskatchewan. Westleaf has also pre-qualified for the province of Manitoba’s secondary lottery for cannabis retail licenses.
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Adam Coates, Westleaf’s Vice-President of Sales and Marketing, commented on Prairie Records’ unique branding and marketing initiative:
“Prairie Records is a concept that celebrates the relationship between music and cannabis. (It’s) not a head shop, but a reinvention of the cannabis purchasing experience in a high-design, sophisticated retail space that will allow customers to feel like they are browsing a modern record store.”
Prairie Records prides itself in bringing value and being true to the communities in which they operate. One of the ways they accomplish this is by hiring and training local people to help run the business, participating in community building initiatives, engaging the local arts scene, and wherever possible, supporting and purchasing from local companies. The Company goes on to say that one of their many goals is to help drive the growth of the communities they enter, not disrupt them.
Another of Prairie Records’ mantras is to create “a unique customer experience that will make each shopping trip safe, fun, and memorable”. The Company intends to blend music and cannabis together in a way that will help educate the consumer on cannabis products, help them find the right product, and provide a shopping experience that will be both comfortable and fun for all consumers.
Mr. Coates commented:
“Experience-led retail is our mantra and it starts with a relentless focus on securing the best retail locations across the country. We are following a flagship-only approach that delivers a brand experience on par with the best of bricks and mortar retail in the world.”
Prairie Records’ Retail Strategy
Prairie Records has built a number of strategic partnerships with industry heavyweights like Tilray, VIVO Cannabis, and Delta 9 – all designed to ensure a steady supply of great brands. The Company’s aggressive retail and growth plan is centred around an experienced management team that has committed to building “a cult-like brand, execute on aggressive growth strategy, and to deliver a best in class customer experience.”
CEO Scott Hurd further elaborated on the Prairie Records retail strategy and partnerships:
“Our core belief is that in many jurisdictions across Canada, Westleaf can curate a unique and engaging customer experience with Prairie Records that will enhance brand loyalty and our growth within the marketplace,” said Scott Hurd, President and CEO of Westleaf. “With a current cash position of over $38 million post-financing, access to up to $30 million of non-dilutive capital, and strategic partnerships with best-in-class organizations like ATB Financial, Tilray, VIVO Cannabis, and Delta 9, we are well positioned to deliver on all facets of the supply chain.”
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Federal and provincial regulations surrounding cannabis marketing more broadly means that retail experiences will be especially important when it comes to reaching a broad spectrum of consumers. Prairie Records say they are totally in tune with the what is and isn’t allowable in terms of advertising and marketing. The Company says that because cannabis retail stores in Canada have to operate in a highly-restrictive environment there isn’t an opportunity to offer traditional product placement on the floor or merchandising opportunities because most provincial regulators mandate that all that product needs to be behind lock and key. Thus, creative and innovative marketing approaches were necessary to build a brand from the ground up. Enter, Prairie Records.
According to Mr. Coates, the in-store design will provide a cool ambiance with a retro-style feel that’s both modern and sophisticated. From record store display fixtures to music listening stations with curated beats that compliment specific cannabis strains to private alcoves for consultations, Prairie Records is promising to deliver a highly interactive in-store experience, replicating an iconic but contemporary record shop.
The Prairie Records retail experience will take you back to the days of browsing through records with a uniquely-themed cannabis twist. Each store will be stocked with ‘album covers,’ but instead of track lists, band photos, and album credits, the covers will include strain information, the format, consumption methods, as well as the THC and CBD levels. By providing consumers with a tactile in-store experience, Prairie Records plans to educate, enlighten, and engage its shoppers in a one-of-a-kind way.
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Strategic Partnerships
Westleaf has aligned itself with cannabis industry leaders to secure strategic brand partnerships, supply agreements, and optimize its capital structure.
Tilray
On December 4, 2018, Westleaf announced that Tilray Inc. has made a $2.9 million strategic investment in Westleaf – a significant validation of Westleaf’s innovative approach to retail through its retail banner, Prairie Records, and is a strong endorsement of Westleaf’s strategy and leadership team. Westleaf will use Tilray’s strategic investment to accelerate the deployment of its robust national retail plan with more than 30 planned retail locations across Western Canada. Tilray’s portfolio includes High Park, Marley Natural, Irisa, Dutchy, Grail, Headlight, Goodship, and Wallops, which will provide Prairie Records with a rich and high-quality product offering.
“As a global leader in the cannabis industry, Tilray’s investment in Westleaf reinforces the strength of our unprecedented approach to cannabis retail and our team’s execution capabilities and is a testament to Tilray’s confidence in our ability to capture market share,” said Scott Hurd, President and CEO of Westleaf. “We are excited about the partnership with Tilray and look forward to continued growth together.”
VIVO Cannabis
On October 3rd, 2018, Westleaf secured a $5 million strategic investment from VIVO Cannabis Inc. to advance the development of Westleaf’s cannabis retail operations across Canada. The investment involves a multi-year supply agreement whereby Westleaf has access to VIVO’s portfolio of engaging adult-use brands and the option to white-label Westleaf-branded products. The VIVO investment and supply agreement is a strong endorsement of the Westleaf team and strategy and advances Westleaf’s position as a premium cannabis retailer in Canada.
Ace Valley
On December 12, 2018, Westleaf and Ace Valley announced the signing of an agreement to launch cannabis retail stores in the province of Ontario. The agreement brings together two customer-centric companies through a strategic alliance to launch premium retail locations throughout Ontario. Infusing Westleaf’s impressive cannabis retail expertise with Ace Valley’s strong brand awareness, the arrangement brings the promise of an unrivalled retail environment to Ontario cannabis consumers.
“The agreement showcases our commitment to the Ontario cannabis market, reinforces our aggressive retail strategy and allows us to tap into Ace Valley’s dedicated following and strong brand credentials,” said Scott Hurd, President and CEO of Westleaf. “We are thrilled to work with Ace Valley and jointly launch superior retail locations throughout the province that will ultimately benefit the end user through retail excellence and brand consistency.”
“In this exciting new cannabis marketplace, we look for opportunities that can enhance our relationship with customers and provide long-term profitability,” said Jesse Dallal, Chief Strategy Officer of Ace Valley. “The team behind Westleaf provides retail expertise that will allow us to further capitalize on our brand awareness and customer base and expand our footprint as a leading cannabis brand.”
Westleaf also worked to secure up to $24 million of debt financing for its Thunderchild cultivation facility with ATB Financial, thereby reducing the equity investment required to develop the project. This creates a substantial competitive advantage, as Westleaf can maintain an efficient capital structure with low-cost debt to accelerate its growth strategy, while limiting dilution for existing and future shareholders.
And, in April 2018, the Company entered into a $12.5 million non-brokered private placement equity financing concurrent to cementing a partnership with industry leader Delta 9 Cannabis. The partnership is centred around building a state-of-the-art cannabis extraction, testing, and R&D lab in Calgary Alberta to develop and manufacture a diversified offering of cannabis products.
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Processing, Extraction and Cultivation
Westleaf’s vertically-integrated business model includes premium assets across retailing, processing-extraction, and cultivation in Canada.
Highlights:
Processing / Extraction
- The total facility is approximately 60,000 square feet with Phase 1 (~15,000 sq. ft.) to include R&D, processing, extraction, manufacturing, and order fulfillment, all built to EU GMP specifications with the intent to access international export markets.
- Phase II (~45,000 square feet) is designed to significantly increase the capacity of the facility and to produce new derivative product lines, including concentrates, vape cartridges, edibles, and beverages, once these types of products are permitted for production and sale under Canadian regulations.
Cultivation
Westleaf is building a large-scale indoor cultivation facility which is currently under construction in Battleford, Saskatchewan with an anticipated capacity of 14,600 kilograms of dried flower per annum (Phase I and II).
- The facility was designed and will be operated by Westleaf’s team who have built and operated dozens of cannabis production facilities in North America. The operations team has a prior demonstrated track record of achieving industry leading yields and cost structures.
The Westleaf Difference: Vertical Integration
Westleaf is a fully vertically-integrated company that has developed a three-tiered cannabis retailing approach – Prairie Records, Loon Cannabis, and Westleaf Cannabis (Medical CBD) – a marketing approach that is completely unique to retailing in Canada. According to the Company, this strategy enables company to maximize margins throughout the lifecycle and maturity of the industry.
CEO Scott Hurd had this to say about the Company’s vertically integrated business model:
“Vertical integration will allow Westleaf to maximize and defensively protect its profit margins. Controlling the entire cannabis value chain from ‘seed to shelf’ enables us to respond rapidly to changing consumer purchasing habits and deliver high-quality and consistent products.”
He continued by explaining the real importance of Westleaf being a vertically integrated business throughout the supply chain:
“We either own, control, or have access to assets across the entire cannabis value chain. And by being vertically integrated, we defensively position our business to protect our margins as we transition through the lifecycle and maturation of this business. Today, you’re seeing the (cannabis) producers and cultivators capturing a lot of margin by virtue of us being in an undersupplied market. But as we move towards a more balanced or potentially more oversupplied market, I think what we’ll see is that those who own the retail distribution, those that control the consumer experience, and those that can ultimately create product brands that are in demand and that align with consumers will be successful long-term. And that’s what we deliver at Westleaf with our vertically integrated concept and strategy.”
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Meet the Team
Combining cannabis cultivation experts, veteran business development professionals, and tenacious capital market specialists, Westleaf’s senior team brings integrity, innovation, and industry-defining thought leadership to the cannabis space.
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In Closing
Taking its inspiration from the world of music, savvy retail investors looking for a unique venture opportunity in the ever-expanding cannabis sector may want to give this innovative Canadian company a ‘spin’.
www.westleaf.com
FULL DISCLOSURE:Westleaf Cannabis Inc. is a paid client of Stockhouse Publishing.