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PLUS Strengthens Grip on California’s Cannabis Infused Edibles Market

Marc Davis
0 Comments|December 17, 2018

It’s a once-in-a-lifetime opportunity. The high-margin, cannabis-infused edibles market in California is literally up for grabs – all because of a government-mandated industry shake-up earlier this year.

Let me explain.

For consumers, 2018 will go down in history as the year that recreational cannabis became legal in California. But for wholesalers and retailers alike it will also be remembered as the year that state legislators put the vast majority of California’s artisanal cannabis-infused food producers out of business.

The rationale for this was simple: it was all about public safety. Truth be told, the Golden State badly needed to implement a better system for quality control and safety for the mass production of cannabis-infused edibles.

However, most of the state’s hundreds of small-scale operators do not have the technology or expertise to ensure precise dosing and product consistency, which is why most of them have thrown in the towel.

Accordingly, a once highly fragmented marketplace is now being fast consolidated by a handful of sophisticated, large-scale operators. This include the cannabis-infused food industry’s new poster boy – Plus Products (CSE: PLUS).

From a standing start a few financial quarters ago, PLUS has become the best-selling manufacturer of edibles in California’s medicinal and adult-use edibles markets. Indeed, sales of PLUS’ THC and CBD infused core products – gummies – are on an upward trajectory that seems poised to continue to strengthen as more and more Californians turn to infused products for both medical and recreational purposes. More on this in a moment.
Remarkably, the company’s sales are based so far solely on four core candied products. Yet this inaugural product line gives PLUS over 5% market share already in California’s multi-billion-dollar cannabis industry. And an aggressive ongoing corporate expansion is destined to carve out a much bigger segment for PLUS.
In fact, PLUS is not resting on its laurels by offering consumers what they are looking for – gummies that are consistent in quality and also standardized dosing. Key to the products’ appeal is the fact that they are scientifically-formulated to be fast-acting, unlike most other edibles on the market. 
The company is now expanding into other popular, high-margin verticals in the edibles marketplace. To this point, PLUS have acquired Oakland-based Good Co-op Inc., a popular manufacturer of infused baked goods. Notably, the baked goods category accounted for 13% of the overall edibles market in 2018, excluding tinctures, according to BDS Analytics.
Good’s high-quality, low-dose baked goods product and brownies are made without using additives or preservatives and have been featured in Fortune, Vice Magazine and Eater.

Such a strategic acquisition helps further consolidate PLUS’ grip on a fast-growing state-wide infused edibles market.

Company CEO Jake Heimark explains: "This acquisition accelerates our time to market in the baked goods category, and will help solidify the Plus leadership position in edibles. We are committed to becoming the largest edibles brand in all legal jurisdictions…”

The Race to Build a Dominant Brand

The company is fully funded for completion of phase one of its manufacturing growth strategy. This involves expanding from its current production capacity of 16,800 to 40,000 square feet.
This is projected to offer enough capacity to generate around $150M in annual production capacity just for PLUS’s four core gummy products alone. All told, up to 120,000 square feet of manufacturing capacity can be brought online, leading to a maximum output (at least at this one location) of as much as $450M of product.
Such financial projections seem immodest. But not when considering how fast the edibles market is growing in California and how new product safety regulations are dramatically curtailing output among cottage industry manufacturers of infused foods.
Also, branded infused food products derived from concentrates and extractions demonstrate superior long-term pricing durability compared to dried flower cannabis.
The fact that edibles provide a discrete, smoke-free experience has heightened appeal among health-conscious and image-conscious consumers. Accordingly, cannabis-infused foods have so far demonstrated superior pricing durability compared to dried flower cannabis. They are also very popular with retailers. In fact, edibles account for up to 60% of a typical dispensary’s profits.
Image courtesy of PLUS Products Inc. Data source: BDS Analytics GreenEdge™
All told, PLUS is making all the right moves to establish a powerful brand in a new cannabis infused foods industry that has been deconstructed by the state government and is now re-building from the ground up.
Accordingly, the business is now being quickly consolidated by just a few large, well-financed players that promise to dominate the burgeoning marketplace for cannabis-infused foods. And PLUS Products is fast becoming a stand-out performer.
Investors should therefore take note that the company is positioned to have a banner year in 2019 as it consolidates its grip on California’s lucrative, fast-growing market for cannabis-infused edibles. In turn, this reality promises to build considerably more intrinsic value into the company’s share price for the foreseeable future.  
About the Author: Marc Davis has a deep background in the capital markets spanning 30 years, having mostly worked as an analyst and stock market commentator. He is also a longstanding financial journalist. Over the years, his articles have appeared in dozens of digital publications worldwide. They include USA Today, CBS Money Watch, Investors’ Business Daily, the Financial Post, Reuters, National Post, Google News, Barron’s, China Daily, Huffington Post and AOL.


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