The time for promise and a good story is over in the cannabis industry. Potential production has been replaced with actual sales, and companies are distinguishing themselves with real revenue growth and clear paths to profitability. There is certainly much to be written in the ever-evolving story of cannabis, but the best companies are executing on sales and marketing strategies to establish a presence in key legal markets while the rest of the world catches up.
To put a highlight on the value of distribution and branding, one need only look at the recent acquisition of Origin House (CSE: OH) by Cresco Labs (CSE: CL), for the price tag of about $850 million. Origin House has a well-established distribution network throughout California where Cresco is looking to establish its brand. By leveraging Origin’s existing operation, Cresco is able to accelerate its own entry into the state.
Gabriella’s Kitchen Inc. (CSE:GABY) sees the opportunity in California as well. GABY’s broad lineup of cannabis-infused products is built on its foundation as a consumer packaged goods company and its experience launching healthy food brands. GABY recently completed the acquisition of a prominent California cannabis brand distributor, Sonoma Pacific Distribution Inc. (Sonoma Pacific). The move brings growing revenues of Sonoma Pac to GABY’s coffers while adding extensive distribution capabilities for its retail brands throughout California, the world’s largest legal cannabis market.
CFN Media recently sat down with GABY Founder/CEO Margot Micallef and President/COO Jamie Fay to discuss the Sonoma Pacific acquisition and GABY’s strategy moving forward.
Sonoma Pacific Acquisition and Attributes
It is significant to note what Founder/CEO Margot Micallef says, that GABY is neither a manufacturing company nor a distribution company, despite owning licenses to do both. Rather, GABY acquired these licenses to ensure the quality of its brands and to get its brands to market quickly.
Sonoma Pacific is GABY’s fast-track to market. Sonoma Pacific holds annual cannabis distribution licenses from the County of Sonoma and the California Bureau of Cannabis Control.
Sonoma Pacific distributes its proprietary and third party cannabis products to dispensaries across the State of California. GABY has additional infrastructure in other channels, and will also sell its proprietary and third party health and wellness-oriented CBD products to outlets like co-ops, grocers, and health food stores across the United States –using its existing relationships it has cultivated with over 3,400 mainstream retailers, brokers and distributors. This hybrid network of mainstream and licensed channel infrastructure provides an ideal platform for the sales of GABY’s healthy food brands, its CBD Brands and its cannabis-infused products. In addition, Sonoma Pacific’s wide range of cannabis and cannabis-derived products on the market, with name recognition and branding already in place, gives GABY a further foundation upon which to bring additional products to market.
Management of Sonoma Pacific estimates its unaudited Q1 2019 revenues, for the period ending March 31, 2019, will be about CDN$8 million. Compared to Q1 2018, that number represents growth of about 1,200% in one year. The companies expect the synergies created by the combination of the two organizations to stimulate even further revenue growth. With the acquisition, Sonoma Pacific executive Aaron Browe was appointed as GABY’s Executive Vice-President and General Manager of cannabis operation. For further details and reader advisory, readers should refer to GABY’s press release dated April 1, 2019.
“While the operational synergies we will realize with GABY significantly improve Sonoma Pacific’s growth trajectory, I also believe that the completion of this Acquisition will be equally impactful for the entire California market,” said Mr. Browe. “With GABY’s foundation and expertise in innovation, brand development and consumer satisfaction, combined with Sonoma Pacific’s ability to reach consumers, we believe GABY is well positioned to reshape the California cannabis landscape as we currently know it.”
GABY President/COO Jamie Fay says the next step is either to acquire or apply for a direct to consumer license to increase household penetration and continue to expand market share. The company plans to acquire and organically develop additional brands (especially around edibles and confectionary), and continue the furtherance of partnerships and opportunities to collaborate outside of California – without losing focus or slowing down growth in California.
GABY will be showcasing its brands, expertise, and management team at the upcoming Hall of Flowers event in Santa Rosa, California on April 30/May 1, 2019. Hall of Flowers is a business to business cannabis trade show, highlighting the best and brightest offerings in the world of cannabis.
California, Extracts, and the Future of Cannabis
As cannabis markets become more mature, history shows that consumers move away from smoked flower to alternative delivery methods such as edibles, oils, tinctures, and creams. Recent analysis of the first full year of legal recreational sales in California show about $2 billion of revenues, including medical marijuana. Across the state, flower accounted for about 44% of all sales. As more derived products are introduced, look for the market share to swing even further away from smoked flower.
That $2 billion overall sales number for California is a bit lower than analysts expected, due in large part to the chunky permitting process and resulting uncertainty in the legal market. As the state irons out these issues and further squeezes out the persistent black market, those numbers should rise considerably. In the article linked above, Matt Karnes from GreenWave Advisors stated, “As the state works through its ‘growing pains’ with respect to licensing procedures and as final regulations are implemented, we expect an acceleration in revenue growth for 2019 and beyond to reach its full potential of $6.5 billion by 2022.” As a reference, Statistics Canada reports that adult-use revenues in the country for the first 4 months of legal sales totaled about US$154 million.
The Upshot
GABY is solidly positioned in California’s cannabis and wellness markets. Not only are those markets really large, but the state is known for its ability to set trends and influence consumer brand choices the world over. Building a successful brand there can lead to much greater success in other markets throughout North America and beyond. Strategically, GABY couldn’t be in a better place. On top of that, the company offers products in the highest growth and highest margin sectors of the industry – extracted and infused products. Keep an eye on GABY as it executes over the coming quarters on its plan to expand its powerful house of brands.
Disclaimer
The above article is sponsored content. Emerging Growth LLC, which owns CannabisFN.com and CFN Media, has been hired to create awareness. Please follow the link below to view our full disclosure outlining our compensation: https://www.cannabisfn.com/legal-disclaimer/
FULL DISCLOSURE: Gabriella’s Kitchen is a client of Stockhouse Publishing.