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The Canadian cannabis market has certainly evolved over the past two years since legalization, going through booms and busts, with companies all looking to deliver the next best product to consumers and investors. What are most cannabis companies consistently missing? Quality product and quality financial performance.
A few cannabis companies are starting to show early indications of rising to the top, delivering consumers cannabis products that they want and, rightly so, earning a profit from it. And as the market grows and consumers’ expectations on quality increase, these companies are likely to prosper.
Enter: Decibel Cannabis Company (
TSX-V: DB,
OTCQB: DBCCF,
Forum).
Company highlights:
- One of the few profitable cannabis companies with tremendous growth ahead
- Qwest flower pricing and quality leading the pack
- Significant revenue growth expected as they increase production capacity by 4x
- Market leader (#1 & #3) in two high growth categories, concentrates and vapes
Decibel flew under the radar for the past year, following its creation and renaming through a merger between
Westleaf Inc. and
We Grow BC Ltd. at the start of 2020. We Grow was a private company that brought an operational cultivation facility and brand (Qwest), while Westleaf brought assets under construction, but when complete, added significant scale. However, this left the combined company with several issues – significant leverage, facilities awaiting licensing, and costs that needed to be checked.
During 2020, as the companies integrated, Decibel’s new management was very quiet in a very loud cannabis space – instead turning their attention to restructuring, cutting costs to create a profitable business, and operational execution.
Over the last few quarters they’ve been busy:
The resulting Company has seemingly resurfaced stronger than ever, having built a strong position in flower, vape and concentrate markets, utilizing its genetics portfolio to build competitive advantages to stand out on the shelf. The Company boasts having a 22% market share in concentrates and 9% in vapes across five provinces (
Decibel update). In the flower market, its Qwest brand continues to sell for extraordinary prices, having seen no price compression to date (Q3’20 - $10.18 / gram). Decibel is well positioned for growth in the coming quarters with an upcoming Q4 to reflect a full quarter of sales of concentrates and vapes, over 30 more vapes and concentrate products to launch, and their Thunderchild facility bringing revenue in Q2 2021 (increasing current flower production from 1,800kg to >9,000kg). Meanwhile, through all of this growth, the Company showed its first positive adjusted EBITDA period in Q3 2020, making it one of the few cannabis producers who are profitable in the space. Here is a deeper dive into Decibel, what they do and where they might be heading.
Delivering Quality Products:
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- 22% and 9% market share in high growth concentrate and vape categories across 5 provinces and only four months into its launch
- 26 vape & concentrate products launched to date, 30+ more coming in 2021
- Qwest flower products remain in short supply and have been out of stock in key provincial markets due to high consumer demand
- Qwest flower products achieve some of the highest prices in Canada as knowledgeable consumers look for quality (Q3'20 - $10.18 / gram)
- Continue to launch new and exciting genetics with 6 – 10 coming over the next year, including Stuffed French Toast and Sunset MAC
Decibel focuses on the ultra-premium segment of the cannabis market – achieving this by bringing rare and coveted cultivars to market. They are focused on quality and constantly trying to push the envelope, refreshing their offerings frequently (launched 26 cultivars to date). They have hard hitters like Kush Mints (
32% THC), flavourful terpene products like Point Break, and funky named products like Ex-wife. Decibel’s products speak for themselves as top shelf with their numbers:
- Kush Mints – 32% THC
- MAC1 – 28% THC
- Point Break – 25%
- Pineapple Cake – 24%
Then we get to the cannabis 2.0 products like vapes and concentrates. Decibel focused on this market for a simple reason – play to your strengths. Product like vapes and concentrates provide the opportunity to highlight plant characteristics (strain, terpene profile, flavour) to which the cannabis input significantly contributes to the quality of the end product. Simply to say, if you are grow good product, that contributes in part to your success in these categories. It seems Decibel is gearing up to fuel all their products with Qwest flower to get that competitive edge.
The success they have had in part comes from their business model of being vertically integrated and owning retail stores, but not quite in the way you would expect. They highlight that their retail stores create value not only by generating revenue, but through the consumer data which feeds R&D of new products. This allows them to shape their products through small product launches and in store feedback, creating a sandbox to develop new products.
To date, they have launched 26 products in market which have seen tremendous success. Of those products, they have only launched products under General Admission (vapes) and Blendcraft by Qwest (a Qwest entry level brand). However, they tease a highly anticipated launch of Qwest branded vapes and concentrates and over 30 additional SKUs in the next year.
Delivering Quality Performance:
- Achieved inflection point in Q3, delivering positive adjusted EBITDA, with only one month of derivative sales in the quarter
- Impressive growth trajectory for 2021, including the launch of 30 more derivative products and increasing flower production by 4x current volumes
Between Q1 2020 and Q3 2020, Decibel delivered 50% net revenue growth and delivered its first period of positive EBITDA, just shy of $1 million. Impressively, their derivative products only achieved first sales in September, so investors will have to keep a close eye on Q4 results. However, based on Decibel’s most recent
press release, one can certainly infer things are going well – in Q3, Decibel had only launched 10 SKUs in two provinces, and in February, they had launched 26 SKUs across five provinces, including Ontario.
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So, what is ahead? Well, Q4 is shaping up to be strong with a full quarter of vape and concentrate sales. Looking to 2021, launch of new vape and concentrate lines will continue to support their growth, particularly as they launch their premium Qwest line of products. With Qwest’s in market recognition and high consumer demand, the Thunderchild Cultivation facility will greatly increase capacity from 1,800 kg to more than 9,000 kg per year. Due to their currently limited production capacity, Qwest flower products are reportedly sold out in key markets. First revenues from Thunderchild are expected to be realized in Q2 2021.
How They Stack Up:
Several Canadian cannabis companies are highlighted below that have positive EBITDA numbers in their most recent quarter, as a point of comparison (in millions).
|
Aphria |
Village Farms |
Supreme |
GTEC |
Decibel |
| Market Cap |
$7,697 |
$1,618 |
$198 |
$77 |
$61 |
| Net Revenue |
$160.5 |
$22.6 |
$18.3 |
$2.1 |
$7.6 |
| Adj. EBITDA |
$12.6 |
$5.6 |
$3.6 |
$0.6 |
$0.9 |
Wrapping Things Up
Decibel Cannabis Company looks to be an early mover building a strong position in the flower, vape, and concentrate markets, delivering quality products. While they aren’t the largest in the space, they appear to be just getting going. Certainly, management’s actions would suggest this – in the last 6 months, insiders have purchased close to 2 million shares. It deserves a closer look from investors hoping to get quality out of their cannabis investment.
To find out more about this Company, the people behind it, its operations, and full investment proposition, visit their website
decibelcc.com.
New to investing in Cannabis? Check out Stockhouse tips on How to Invest in Cannabis Stocks and some of our Top Cannabis Stocks.
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FULL DISCLOSURE: This is a paid article produced by Stockhouse Publishing.