(MENAFN- Baystreet.ca) Later thisyear another large legal cannabis market will open up, with the lifting ofprohibition on edibles and extracts in Canada. Following in the footsteps oflarger markets, such as California,Canada is about to experience aheavier strain on supplies , as producers struggle to meet demand, particularly with the capabilityto yield extracts needed for these new products. Several companies already inthe business of edibles and/or extracts have led the way through their exampleof how to prepare for delivering for these markets, such as Plus Products Inc. (OTC:PLPRF)(CSE:PLUS), MediPharm Labs Corp. (OTC:MEDIF) (TSX.V:LABS), Valens GroWorksCorp. (OTC:VGWCF) (CSE:VGW), Neptune Wellness Solutions Inc. (NASDAQ:NEPT)(TSX:NEPT), and Trulieve Cannabis Corp. (OTC:TCNNF) (CSE:TRUL).
Expectationson the alternative cannabis products market (drinks, edibles, and topicals) is very high, with Deloitte recentlypredicting themarket's worth to reach as much as$2.7 billion annually .
Already, theexample of success is in California, where edibles are surging, led by
innovatorssuch as Plus Products Inc. (OTC:PLPRF) (CSE:PLUS), whose proprietary infusedgummies aredominating the state's ediblesmarket . Californiais the largest cannabis market in the world, and according toArcviewMarket Research /BDS Analyticsisprojected to be $5.6B of retail sales in 2022.
California's cannabis market is rapidly shifting towardsmanufactured products. This demand shift requires significant amounts ofcannabis oil for products that include vapes, concentrates, and edibles. In Q12019, these manufactured products made up 56% of all retail sales—up from 49%in Q1 2018 according toBDS Analytics .
MOVING CHESS PIECES INTO POSITION
In order to maintain its market dominance in California, Plus Products Inc. (OTC:PLPRF) (CSE:PLUS)just acquired an option to purchase Emerald Bay Wellness LLC, aCalifornia-based cannabis oil manufacturer. The option grants PLUS theirrevocable right, but not the obligation, to purchase all of the businessassets of Emerald Bay Extracts.
Strategicby its nature, the potential purchase of Emerald Bay Extracts marks aheightened importance to securing extract supplies. Given that extracts areessential to the cannabis edibles market, assuming a supply within a verticallyintegrated system could potentially be a major benefit to companies like PLUS.
"Acquiring Emerald Bay would give PLUS the opportunity todirectly interact with the cannabis
plant as we work to unlock the many benefits it is capableof delivering," says Jake Heimark,
Co-founder and CEO of PLUS. "We targeted this acquisitionbecause it allows us to reap the benefits of vertical integration whilemaintaining a focus on product manufacturing. Beyond the benefits ofinternalization, we believe that the team at Emerald Bay, possess the professionalism and know-how to rapidly scale their wholesale oil businessunder our umbrella of resources. Ultimately, this is a rare opportunity toimprove quality control, cut costs, and grow revenues all at the same time."
THE PATH TOPROSPERITY
When itfirst received its California manufacturing license in December 2017, PlusProducts Inc. (OTC:PLPRF) (CSE:PLUS) was ranked the 50thbest-selling brand among the hundreds of legal products in the state. As of thebeginning of April, their offerings including the #1-selling Sour Watermelonand #3 Restore-Blackberry Lemon products hold five of the top 10 sellingproducts in the state—and two of the top five.
Their risehas not gone unnoticed, asPI Financialrecently launched coverage on thecompany at the end of May 2019—projecting the company could be nationallyrecognized edibles leader in time.
AnalystJason Zandberg stated, "We believe that PLUS Products represent acannabis company that has established itself in California and has a greatchance to become one of the few national recognized cannabis brands over time."
The analyst launched his coverage calling for fiscal 2019revenue and EBITDA of US$23.5 million and negative US$3.2 million,respectively, and fiscal 2020 revenue and EBITDA of US$72.8 million and US$13.9million, respectively.
"California's consumers have made PLUS a leading cannabisbrand in the State. Direct feedback from consumers in California, which is thelargest and most competitive cannabis market in the world, will enable brandslike PLUS to have a significant product edge when launching products in otherjurisdictions" said PLUS CEO Jake Heimark. "If you win California, you can winthe world."
OTHER PLAYERS IN EXTRACTS AND ALTERNATIVECANNABIS MARKETS
AsCalifornia has set the example, the concern comes back to Canada and how it toowill handle this surge in demand when edibles are made legal later this year.Here are some examples of companies that will likely be called upon to deliverwhen that prohibition is lifted:
MediPharmLabs Corp. (OTC:MEDIF) (TSX.V:LABS)
A leader in specialized, research-driven cannabisextraction, distillation, purification and cannabinoid isolation, MediPharm wasthe first Canadian LP licensed under ACMPR to focus exclusively on cannabis oilextraction. The company is widely recognized as a pioneer in the extractionfield, and currently supplies some of Canada's most well-known cannabiscompanies, including Canopy Growth and Emerald Health Therapeutics. Their70,000 sq ft extraction facility is capable of processing 150,000kg of dry cannabisflower per year. This capacity is expected to increase to 250,000kg per year in2019.
ValensGroWorks Corp. (OTC:VGWCF) (CSE:VGW)
Multi-licensed to provide cannabis products and services inCanada, Valens GroWorks already has signed hemp extraction agreements with hugenames such as Canopy Growth, Tilray, The Green Organic Dutchman, andOrganigram. With the capacity to process 240,000kg of dried cannabis and hempper year, Valens boasts a leading edge cannabis research laboratory housedwithin Agritech, and Valens Farms, a 400,000 sq ft cultivation greenhouse thatis in the early stages of development. To complement its extraction business,Valens also sells product development and white-labelling services.
NeptuneWellness Solutions Inc. (NASDAQ:NEPT) (TSX:NEPT)
Wellness products company Neptune Wellness Solutionsspecializes in the extraction, purification and formulation of health andwellness products. Across its team, Neptune brings 50 years of combinedexperience in the diversified wellness products market (ie. marine oils, seedoils, pet supplements and more). Since 2017, the company has signaled itsintent to enter the high-growth legal cannabis market. However, it wasn't untilJanuary of this year that the company finally received its license to processcannabis from Health Canada. Now playing catchup, Neptune has been able tosatisfy on its previous multi-year supply agreements, including a June 2018deal with Canopy Growth. The company has a 50,000 sq ft GMP-certified facilityin Quebec, which later this year is expected to increase processing capacity to200,000kg of dried cannabis later this year.
Beyond Canada and California, another example of potentialfor touching upon the edibles and extracts market like PLUS, is multi-stateproducer, Trulieve Cannabis Corp.
TrulieveCannabis Corp. (OTC:TCNNF) (CSE:TRUL)
Trulieve Cannabis has grown its multi-state nationalpresence, through a strategy to bring together operations across theCalifornia, Connecticut, Florida, and Massachusetts markets. In February,Trulieve found itself bridging markets between Colorado and Florida, by inkinga deal with Colorado-based Love's Oven LLC to bring their ediblecannabis-infused baked goods, craft concentrates, and other products to Florida'sgrowing patient base. Also recently, Trulieve signed an agreement withCalifornia-based Blue River Extracts & Terpenes™ to bring theiraward-winning terpene extracts and other trademark branded products to thegrowing patient base in the company's home state of Florida.
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