Maricann Group CEO Ben Ward on Cannabis and Growth

Maricann Group (CSE:MARI)(OTCMKTS:MRRCF)(FRA:75M) is one of Canada’s ACMPR growers producing 2,000 kilograms of medical cannabis, but plans are underway to expand that to 22,400 kilos per year with the addition of a new 217,000 square foot facility.

TRANSCRIPT:

James West:    Ben, thanks for joining us today.

Ben Ward: Pleasure to be here, James. Thanks for the opportunity.

James West:    Ben, can you give us an overview: what exactly is the business model of Maricann?

Ben Ward: Maricann is a vertically integrated cultivator, processor and distributor of medicinal cannabis in Canada, operating under federal license. We’re located in Langton, Ontario, two hours southwest of Toronto, and we operate an existing retrofitted 44,000 square foot facility. We produce around 2,000 kilos of product a year, and those are the humble beginnings of the company.

We’ve now entered into and are moving ahead with an expansion of 217,000 square feet, the first phase, and that will produce about 22,400 kilos of product; that will be online and producing early next year, in Q1, and now we’ve moved forward with the second phase of that expansion as well, to produce another 35,000 kilos of product a year.

So we’re building out domestically in Canada in our licensed operation to be able to support different medical and pharmacy initiatives that we have for distribution, and then in Germany, we have a facility that’s 1.15 million square feet. We’ve already built 75,000 square feet of that out to be able to cultivate specifically for the German market.

So that’s the basic background and progress of the company.

James West:    Wow. Okay. When did you get your license?

Ben Ward: Our license was achieved in March of 2014.

James West:    So you’re one of the originals.

Ben Ward: Yeah, we are. We were the 14^th license issued, and we were the 256^th applicant to the process.

James West:    That’s interesting. Okay, so what differentiates Maricann from other ACMPR producers of medical cannabis?

Ben Ward: One of the main things that differentiates us are our low production costs and the future production costs that we’ll have. We’re in a traditional agricultural area; previously it was a tobacco-growing region, great infrastructure available for us. So we’re on a 100-acre footprint. We have all the requisite licenses, we cultivate and sell flower, we process and extract cannabis and then distribute it as well as the others. But one of the other key differentiators is the acquisition we just made, which is NanoLeaf Technologies. It’s a drug delivery platform that’s from Switzerland and has been developed; they’re globally patented, which makes cannabis which is liquid soluble, be able to be absorbed in the aqueous environment in the stomach and the intestines, and have rapid uptake instead of stacking effect.

So, a technological differentiation in drug delivery is a major key differentiator and that’s combined with our ultra-low-cost platform for production in Langton, Ontario. We can go into some of the automation improvements, some of the differentiation in our facility and production that take us to around $1.34 all cost in.

James West:    $1.34 a gram? That’s interesting. What’s your average sale price?

Ben Ward: Our average sale price right now is $10.62 for dry flower. So it’s a good margin opportunity, and some of the key efficiencies that we have in our new facility, our own natural gas co-gen facility where we create our own electricity, it’s our second highest input, so having that on the property will reduce our electrical costs from $0.24 a kilowatt down to $0.45 per kilowatt hour.

And then we have all our water is local and free; the water table’s at 18 feet, and we can pull 60,000 litres a day, and we trap our own rainwater. So that’s another key advantage that we have.

And then just the natural gas infrastructure support that’s in the area. We actually own, and are a part owner of the consortium that produces natural gas. So we purchase our own supply at the same price that the utilities buy it for, so we save on margin there.

James West:    Okay. What do you do to acquire patients?

Ben Ward: We have a bunch of different groups that we work with. Our biggest focus is a joint pharmacy initiative; we’re working together with a major pharmacy group in Canada and providing pharmacists education so they can direct and point patients who may need medicinal cannabis as a complimentary therapy, and then we receive those patients through their network and then directly supply them with cannabis.

James West:    Okay. How important to you is the recreational legislation that’s supposedly going to be rolled out on July 1^st, 2018?

Ben Ward: Yeah, that’s the real big windfall for the business, and it allows us to take different technologies and different products that we’ll be licensing at the US that are established brands, and bring them to the Canadian market. I think that’s a key opportunity for us. If we look at the medical and recreational split, we’re at 30 medical, 70 rec, so we do have a key focus on medical. At present, we’re moving through all our delivery platforms, but we do have the ability to license in different products from the US, and then distribute them.

James West:    Okay. And what kind of preparations are you making to advertise or market to the rec market, in the face of the Canadian limitations on advertising?

Ben Ward: We’ve looked at different advertising and restrictions that are similar to the tobacco and the alcohol space; we hope that the restrictions are not near as prohibitive as the tobacco legislation, because we want to move the dialogue away from individuals smoking cannabis; there’s so many different ways that you can ingest cannabis and start talking about the health benefits. So we have a plan prepared, but it’s for many different scenarios, so we’ll have to wait and see what the exact rules and regs are before we can deploy.

James West:    All right. Do you think Canada’s on track to make that July 1^st deadline?

Ben Ward: Yeah, I think we’ll see the July 1^st deadline met, and the provinces are being very proactive in putting out the distribution model, and the way that they see or would like to have product distributed. Ontario just came out with their regs today as well. So for the largest province and the largest population, and I think everyone’s on track for the, at least the start of medicinal cannabis in July.

The only problem is, there’s not enough product in this country to supply everyone. So licensed producers are scaling up, expanding capacity, but it takes a long time before you can get a new facility up and running, approved, and then plants, it’s not like you can produce them in a day; they take, they have lead time. So I just think the supply and lack of supply is going to be an issue for the first part of the recreational market.

James West:    Do you think that the black market, the illegal market, represents a threat to the success of the recreational legal program in view of the government’s inability to slow down the explosion of illegal sources of marijuana, both online and in physical locations across the country?

Ben Ward: I think we’ll see that go away once ease of access is created. I think that the distribution platform is the most important element of that; if we look at the regulations that Ontario put out and how they’ll be distributing, and a very similar system to the liquor store system in Ontario, it gives ease of access.

I mean, there’s lots of people – people prefer to go to a legal choice where they can know that there’s a quality product created for them: no pesticides, no contaminants, something that’s been prepared in a regulated, licensed environment. I think you’ll see the same thing happen as did in liquor. I mean, moonshine was made in many different places and consumed, but isn’t prevalent and isn’t people’s first choice anymore. They’d prefer to have a consistent, branded product that can be purchased at a reputable location, and they want to know where the product is coming from and what it’s going to do for them, and that it’ll have the same consistent effect.

James West:    Mm-hmm.

Ben Ward: So I think the gray and the black markets start to go away, because there’s just no consistency or reliability of product. Someone could have sprayed the product. There was a great article that was done in the newspaper here, with different groups looking at taking dispensary product from the black market, and almost all of it had contaminants. So people who care about their bodies want a better – use cannabis to improve their lives, and taking something that has contaminants in it that can hurt you is kind of counterproductive.

James West:    Okay. What is it that your customers like best about your product, from the feedback you’ve gathered?

Ben Ward: The feedback that we get, people really appreciate the size of the cannabis flowers that are distributed at present. They like the potency of the cannabis oil, the effect that it has. And we have some unique strains that other groups don’t have, as we’re limited to the flower and tincture market; ghost train haze is one of them, it was a Cannabis Cup award winner, and people appreciate the euphoric effect that that has.

James West:    Okay. So you place a degree of importance on your ability to differentiate through strains and genetics, then?

Ben Ward: Yeah. Strains and genetics are the absolute foundation of a cannabis operation. Without good initial feed stock, you’re not going to be able to create good products, and that all sorts of (inaudible) [0:10:16]

James West:    Right. Okay, Ben, you know what? That’s a great first interview. I’d like to thank you for your time today.

Ben Ward: Great, thanks a lot, James. I appreciate it.

James West:    Thanks. That’s the recorded portion of our podcast, so now I would like…