(Image via Bhang)
Last week, amidst a sea of economic uncertainty, the cannabis market showed impressive strength.
The kicker? With COVID-19 putting many regions and businesses on lockdown, cannabis became an unexpected winner. Dispensaries were labelled “essential services” that remained open in many jurisdictions, and cannabis sales were through the roof.
But it takes a lot more than a strong week to be successful in cannabis. The overall impact of the pandemic has been negative towards all markets, but at the beginning it was cannabis that took a big hit. Of course, the sector is no stranger to difficulties, having been subject to overambitious sales estimates, underwhelming government regulations and store rollouts, and uncertain legalization pushes in many regions.
So, what is the “secret” to cannabis success? It’s not a secret at all, because the markers are the same for success in every industry: a history of navigating the market, a profitable business model, and a roadmap to follow towards success.
One of the few companies that can claim all three is
Bhang Inc. (
CSE:BHNG,
OTC:BHNGF,
Forum) and the Company’s President & CEO, Jamie Pearson. With a 10-year operating history, Bhang is as close to a veteran company as you can find in cannabis, starting as a cannabis edibles powerhouse.
(Image via Bhang)
Today, the Company encompasses much more than edibles, but the brand’s solid operational foundation and core values haven’t changed. Pearson recently spoke with Stockhouse Editorial about how Bhang is navigating the current market waters, and by and large, the answer is to stay on track.
“What Bhang was in the past and what we are now is, one of the real OG cannabis CPG companies. We don't just talk about what we're going to do, we actually do it. We've been putting products in people's hands globally that they love and are still buying, and we're out here with a 10-year history of doing just that. We’re executing our strategic plan with a very low op ex model and we’re one of the companies that will still be around after this blows over. We’re the cannabis brand that's been raising the bar and doing it right since day one. What we’ve done over the last three and a half months (since Pearson became CEO) is returned to focusing on what we're good at. We’re “doubling down” on THC chocolate. This COVID-19 crisis is a perfect time to reset. Of course, we will do what it takes to generate revenue in the short term, but we continue to have our eye on moving the ball down the field post-legalization.”
Bhang originally made its name known as THE cannabis chocolatier in town, and that reputation has stuck. In each jurisdiction that Bhang THC and CBD chocolates are sold, the Company quickly captures market share and sees its products vault to the top of the sales chart, including in Canada (specifically Ontario & Alberta) and California. It’s an enviable position to be in, especially when the recent pandemic hit and Pearson said the whole edibles sector saw record sales as customers stocked up on inventory for a long haul.
Pearson is especially bullish on the Company’s recent overhaul of its position in California. Bhang is benefitting greatly from terminating their relationship with the previous licensee in California and the new contract has resulted in the Company having branding, marketing and sales control in the largest cannabis market in the world. The result has been impressive: significantly higher revenue, a larger dispensary and delivery footprint, streamlined operations - including reliable production - and a focus on sales which had been sorely lacking in previous years. “We have only had the brand back for about sixty days. The turn-around is remarkable. Our team is excited about being “boots on the ground” in California. We’re launching our new packaging, talking to dispensaries and working hand-in-hand with DJ Muggs of Cypress Hill and the Soul Assassins who are legends in ‘Cali.’ It’s like a renaissance for Bhang. We’re back to focusing on THC chocolate in California and working with people who have been in the trenches since day one.
But as Pearson pointed out, the Company pre-Covid restructured its portfolio into three distinct product lines, for a mix that is high margin and puts the Company on the path to profitability. That mix consists of THC, CBD (which Bhang has been producing since 2011, long before the general market came around), and non-cannabis wellness products.
(Image via Bhang)
When the Bhang team considers adding new products or ideas to its portfolio, the focus is on what checks all the boxes. Innovative products are great, but Pearson only considers them when they’re profitable and fit the plan. She inherited
last year’s acquisition of
Red Ace Organics, an organic beet beverage and powder company.
Initially, Bhang had been working with Red Ace Organics to develop CBD wellness drinks, including a CBD-infused beet shot. However, when FDA regulations frustrated the notion of infusing CBD into food and beverages, the Bhang team was forced to analyze the company as a stand-alone asset. Ultimately, the team considered the 1400 points of mass-market distribution, Red Ace’s strong relationships with elite athletes and natural food stores and their profitable products a good fit in the future plan.
What they saw was the opportunity to enter a wellness market with fantastic returns that’s continuing to grow, and what they’ve gotten is an early entrant into functional beet beverages, which is now the new superfood darling. The feedback Pearson receives about the Red Ace product from retailers like
Whole Foods, and even elite athletes who reach out after using the Company’s beet shots and beet powder, solidifies that Bhang found a diamond in the rough. Bhang invested in developing a new line of functional refreshing beet beverages,
Be, and was prepared to launch it at Expo West before Covid-19 delayed that plan.
(Image via Bhang)
Again, the strategy Bhang employs isn’t
unique, it continues to be simply well-executed. Another strong aspect of the company’s three-tiered plan with their top-of-the-line products is their licensing agreements with major operators including
Trulieve Cannabis Corp. (
CSE:TRUL) in Florida,
Cannavative Group in Nevada, and their 50/50 joint venture with
Indiva Ltd. (
TSX-V:NDVA) in Canada across Alberta, Saskatchewan, Nova Scotia, British Columbia, and Ontario where within days, both the milk and dark chocolate ranked in the top two positions for sales, by dollars and units, above all other edible SKUs in the province.
All the while, Pearson and her team have been watching other companies competing in the cannabis space with interest, and disappointment. As Bhang has grown and established its business model, others in the field have struggled, and the current state of the market will be tough to navigate for many. In her interview with Stockhouse Editorial, Pearson explained the mistakes she saw in the market, and why Bhang was in a position to win out.
“The companies that have been out there trying to game the capital markets as their business strategy, you’re starting to see that’s not a good long-term business strategy. That was never what we were doing. We have always simply focused on developing really good products that people want. We don't want to hemorrhage cash to figure these things out. We're not going to just throw money at something and then hope it sticks. I would rather sell less and make more than give our products away and lose money to “buy” shelf space. Ultimately, that's how we're going to stay in business is by building brand equity that keeps the money coming in, and now is the time to go and capture market share. There’s going to be a blood bath. A lot of companies won’t be able to weather this storm. Bhang continues to quietly doing our thing, and when those shelves open up, we’ll be there.”
Investment hype around cannabis was long focused on two points: the short-term value proposition before the industry takes off, and the long-term play of a profitable and sustainable industry. For Pearson and Bhang, the time for both plays is now.
It might sound surprising, but all signs point to the present as a major tipping point for cannabis competitors. On one hand, you have the weaker overall market heading into the coronavirus pandemic, and the initial economic toll weakening the entire sector. On the other hand, Pearson has seen demand for Bhang’s products increase dramatically, and she constantly fields calls from retailers wanting more products. From an investor’s perspective, her prognosis that companies able to survive will be able to capture market share away from those that don’t seems right on the money.
(Image via Bhang)
Bhang as a business, however, has always been focused on long-term profitability and prosperity, and it’s here that Pearson is most excited. What the recent pandemic has shown to investors and politicians alike is that cannabis is impressively recession resilient, and combined with the labelling of stores as “essential services” during a time of crisis, points to a bright future for cannabis. In an American election year, that can quickly snowball into more stores, more states being legalized, and more pressure for federal action.
The companies that will be able to tap into that success are those that are solidly established,
have well-founded business models, and are poised to capitalize on the opportunity. Add in the fact that, so far, many “definite” opportunities in cannabis have been riddled with hurdles or missed the mark to some degree, success requires a history of navigating through those difficulties. US-wide legalization may well be on the way, but it might not roll out as expected, and it might still be farther out than anticipated.
Bhang has the track record and the business model to pull it off. Right now, the business is in a strong market position, topping sales charts and expanding its footprint across Canada, the US, and the rest of the world. The Company was built slowly and with purpose. It has the foundation to weather the current market storm.
(Image via Bhang)
When the storm clears, Pearson told Stockhouse Editorial that Bhang is ready to go. Success, after all, comes to those that stay the course, and Bhang has been on target for its 10-year history.
“We (the industry) have reached the tipping point, and you can’t put the genie back in the bottle. We’ve got an election year coming up. Several states are expected to go recreational, and we’re going to see positive changes because of these essential service designations. Cannabis is here to stay. You just have to find the companies that have the ability to stick around. That’s it in a nutshell, and we’ve got ten years of history of not being weeded out (pun intended). We're not confused about who we are. We’ve been a CPG company since day one. We've got a great reputation because our products are amazing, and we have a long history of putting great products in people's hands. Our eye is on the long game.”
FULL DISCLOSURE: This is a paid article produced by Stockhouse Publishing.