(Image via Indiva)
Cannabis investing in 2020 is a very different beast compared to years previous. Hype alone is no longer enough to satiate investors after seeing the decline of major cannabis operators and LPs over the past year.
The
Indiva team saw this coming a mile away. Before entering cannabis, Indiva’s President and Chief Executive Officer, Niel Marotta, worked in capital markets, portfolio management, and investment banking, and in a recent interview with Stockhouse Editorial, he recalled seeing that the nascent cannabis market of the mid-2010s was an extremely attractive venture. But when he looked the companies that were leading the space, he felt they were not pursuing it in a calculated manner, it was all about size, and the current situation of the cannabis market reflects it.
“There might be some retail investors that think that they've got a winner because they've got the biggest greenhouse. All I see is just bloated cost structures, and I don't think success will depend on how big you are anymore. I think that story is played out. Investors want to see not just growth, but profitable growth. I think the industry will run of out excuses if in six months from now they’re selling products across the country and still not profitable.”
When Marotta co-founded
Indiva Limited (
TSX-V:NDVA, OTC:NDVAF, Forum), the value proposition for investors was focused on long-term return-on-investment. Instead of trying to bring in the most capital, Indiva solidified its foundation by focusing on quality and finding reputable cannabis products and partnering with the best in the business, from experts to peer licensed producers.
After receiving its cultivation license from Health Canada towards the end of 2017, the Company quickly established itself as a premier grower, working out of a state-of-the-art hydroponics facility in London, Ontario. By 2018, it had started expanding its footprint to 40,000 square feet to support the production of extracts and edible products.
But even though Indiva was by no means the first to grow medical-grade cannabis in Canada, the Company was quick to figure out the market opportunity for edibles. Long before any definitive regulations on cannabis-infused products in Canada were announced, Indiva found two award-winning partners with experience manufacturing and producing edibles,
Bhang Inc. (
CSE:BHNG) and
DeepCell Industries.
(Image via Indiva)
For Marotta, he could see the financial writing on the wall. As Indiva started to sell and distribute cannabis, the revenue earned from additional grow rooms was impressive, but limited. For every 1,500 square foot grow room, Marotta estimated the Company could earn $2-3 million in revenue from growing cannabis. If those same rooms were producing cannabis derivatives, they could earn upwards of $20 million per room.
Fast-forward to today, Indiva has existing distribution deals with Ontario, Quebec, Nova Scotia, Alberta, Saskatchewan and British Columbia, and the Company’s London facility is almost 100 percent complete. In October, it had
received Health Canada approval for its third phase, putting its operational capacity at 30,000 square feet, and at this time, the fourth and final phase is completed and awaiting approval.
Indiva boasts a diverse product portfolio with some of the top-performing pre-rolls in Ontario. On the craft cannabis side, the Company produces its own flower, pre-rolls, tinctures and capsules. On the derivative side, the Company’s processing rooms are fully-functional and producing its chocolate at scale. Looking ahead, Indiva will convert some of its production space to manufacture gummies, cannabis sugar, cannabis salt and fruit chews.
Many companies claim that they focus on quality products, but Indiva’s results back up their claim. Their products on the Ontario Cannabis Store (OCS) have sat in the top-ten on numerous occasions and consistently receive great reviews. It’s no surprise, therefore, that top LPs and applicants are lining up to work with the Company. On October 22, 2019, it announced a
partnership to produce and distribute pre-rolls for
The Supreme Cannabis Company Inc. (
TSX:FIRE), and on January 7, 2020 it announced the
first nationwide shipment from the partnership.
(Image via Indiva)
With Indiva’s partner brands being so well-known, it has already lined up purchase orders for its Bhang® Chocolate. As the Company awaits its edibles, extracts and topicals sales licence, it continues to build up supply to meet the needs of its provincial partners.
The Company chose its partners carefully, looking for proven experience and quality. A case-in-point is Bhang®’s line of cannabis-infused chocolates, which were originally produced by a Michelin-rated chef and master chocolatier. Marotta highlighted that, when one provincial wholesaler conducted a tour of Indiva’s chocolates facility, they told Indiva that the Company was better prepared for production than the vast majority of LPs. Much of this preparation is due to having experienced, proven partners on the sidelines able to support the Company’s goal for reaching national scale in a short period of time.
“We didn’t start making edibles six weeks ago because it came in fashion. We signed our joint venture with Bhang® two years ago and planned for some time, and then started making them months ago because it took time to license the space, finance, build, prepare, condition, and get ready, but now we’ve got a terrific product. Making chocolate is not that easy. Look at the OCS today, it’s not like there’s 20 other companies making cannabis-infused chocolate, there are only about three. We don’t believe in reinventing the wheel. I would almost always rather find something that’s award-winning and bring it to Canada.”
If it seems like things are ramping up fast for Indiva, you’re correct. However, the process itself has been a while in the making. Last year, the Company was pulling in revenue from pre-roll sales exclusively. This year, it’s starting with more capacity, more sales and distribution deals in place, and new cannabis products ready to launch. Indiva has been following its strategy carefully over the past few months, and now it is starting to capitalize.
The Canadian cannabis industry had a difficult 2019 as it grappled with supply issues and slow retail rollout, but the overall market was still pulling in well over $100 million per month in revenue. The addition of Cannabis 2.0 products is projected to double that number if they’re at all similar to mature U.S. markets, and that’s without accounting for the rollout of new retail stores in major provinces.
(Image via Indiva)
Indiva will start 2020 in six key provinces, which cover more than 90% of Canada’s total population. Looking ahead, the team is looking to add Manitoba and the Atlantic provinces. Ramping up shipments to each province will add significantly to the Company’s revenue stream and up the attractiveness of partnership potential with new brands.
The good news for Indiva, and its investors, is that the Company continues to grow. Though Marotta expects craft cannabis in existing markets to be a big contributor of revenue at the start of the year, entry into additional markets and the introduction of Cannabis 2.0 products will further embolden the Company’s growth strategy.
“I think there’s a lot of organic and internal growth sitting right ahead of us. Right now, our craft grow is basically 100 percent of revenue, but as we introduce more products this year, and those products get distributed across more channels, you see this big hockey stick in revenue. The vast majority of our business going forward is going to come from edible and derivative products and B2B services. As soon as we receive the necessary licence to sell edibles and extracts, we will begin to deliver our inventory of oil capsules and chocolates. That’s when the floodgates open and we kick-off this very exciting next chapter in our story.”
At first glance, Indiva’s slogan “Our Roots Run Deep” is about the Company’s experience and expertise, but more than anything, it’s about how the business operates. Indiva didn’t rush into anything, making sure to set up the fundamentals for both strong products and solid financials.
(Image via Indiva)
For Marotta, the Indiva story is about people, partnerships, and products. The Company brought in the right people with a combination of experience in consumer-packaged goods, cannabis, food, and capital markets. It partnered with brands that understood how to make the best cannabis products. And, with everything in place, it has focused on delivering the very best in cannabis to market. Everything is there, baked into the cake, or more appropriately, the roots. Now, those roots are ready to grow even more deep.
FULL DISCLOSURE: This is a paid article produced by Stockhouse Publishing.