The Supreme Cannabis Company Inc (CVE:FIRE) Khalifa Kush International Partnership
The Supreme Cannabis Company Inc (CVE:FIRE) (OTCMKTS:SPRWF) (FRA:53S1) President John Fowler shares his excitement about the company’s recently announced partnership with Khalifa Kush Enterprises (KKE), the cannabis brand of hip hop star Wiz Khalifa. Under the terms of the deal, Supreme will be the exclusive producer of KKE’s branded products in Canada and in international markets (excluding the United States). This includes developing a Health Canada compliant strain based on the premium Khalifa Kush strain. Fowler believes pricing in the cannabis space is similar to the wine industry, where consumers frequently pay more for premium products Fowler expects cannabis consumers to be equally willing to by premium products at similar price points to the wine industry and this is one of the reasons for the Supreme-Khalifa Kush Enterprises partnership. Fowler addresses the company’s uplist to TSX and a major US listing and discusses several changes the company needs to make to meet US uplisting requirements.
Brandon Colwell: It’s John Fowler, president of the Supreme Cannabis Company. How are you doing today?
John Fowler: I’m very good. Thanks for having me.
Brandon Colwell: So, what have you guys been up to recently?
John Fowler: So today, we were happy to announce that we’ve entered into an exclusive partnership with Khalifa Kush Enterprises. That’s one of the most exciting premium brands in the US that was founded by artist Wiz Khalifa back in 2015.
Brandon Colwell: Yeah, and it’s making news all over the place. What exactly entails that relationship or that partnership?
John Fowler: So we met the group about a year ago, and it’s quite interesting – we almost didn’t meet them, because we really don’t believe in the kind of endorsement deals, you know, generally slapping a brand on top of someone else’s product. But we were encouraged to go down and meet the team, we were really impressed by the alignment of values between our company and theirs. You know, they look at quality, they respect the plant, and they really feel like this is the opportunity to build leading global brands that are going to last the test of time.
For us, that was 7ACRES here in Canada; for them, that was their Khalifa Kush brand, which is a really unique strain of OG Kush that they commercialized in Nevada, and we’re looking forward to bringing to California and a few other states, as well.
Brandon Colwell: Very nice. And how does the relationship work with Supreme, with 7ACRES? Are you hoping that – obviously, we’re all waiting for that time when legalization happens in the Unites States. It’s going to happen, we just don’t know when. But are you hoping to have a relationship where one of you can be crossing borders at one point in time?
John Fowler: So this is about bringing intellectual property and expertise out of California and into Canada for Supreme, so there’s going to be a strong knowledge share. There’s going to be consulting around strain development, around branding, around marketing. You know, he has a full, KK as a company has a full team. So it’s not working with, you know, one celebrity or an endorsement or anything; obviously he’s the tastemaker, he’s really driven the vision and the energy of the company, but he’s got a really strong team around him.
So we’re going to get the benefit of their expertise, we’re going to work with our genetics team to recreate Khalifa Kush for the Canadian market, and we also have included in the contract a right to take that intellectual property out to the global market as well, where they’re prohibited doing so starting in California.
Brandon Colwell: Gotcha. That makes a lot of sense, then, going forward. Now, when it comes to 7ACRES and what you’ve been doing with Supreme, how has it been since legalization? As many, or most viewers, I imagine, are well aware, are you guys are business to business, and that’s the focus that you’ve chosen. How has it been since October 17th?
John Fowler: So that’s been our primary business model pre-legalization, so with the legal market starting out, we were able to shift to a B2C model. So 7ACRES is on the shelf in six provinces. We took a bit of a different approach, you know. We’ve always been different as a company. First, we focused on premium, so you know, for the last few years, you guys have on this show and many others talked about low cost and commoditization; well, we don’t believe that to be true. We believe high-end cannabis flower is the most important segment in Canada, and will continue to grow.
We focus on producing the best cannabis in the country at scale, and we put that in our own brand, 7ACRES, out to the stores, and so far, the demand has been great. To give you an example, in Alberta, we’re the most expensive 3.5 gram sku in the market with our flagship Jean Guy strain; $10 more expensive than the next competitor. So quite a big premium, and we were very encouraged to be that product sold out on the online store in about 48 hours, just showing using that one example, the strong demand that Canadians have for premium cannabis, and they’re willing to pay a little bit more for something a lot better.
Brandon Colwell: Yeah, I remember actually, almost a year ago, there as an AGM meeting that I attended with you, and you were talking about the Cali bud, and how there’s a market for this high, premium cannabis that’s obviously more expensive than your run-of-the-mill cannabis you’ll find elsewhere, but it’s – in your eyes, and the eyes of a connoisseur, it’s worth it. And one of the things we’ve noticed since legalization, there’s a lot of talk that a lot of these LPs are not having good cannabis.
We won’t mention any names; there’s a lot of talk of that. Do you think that as this continues, people are going to get pickier with their cannabis? They’re going to recognize, you know what, it’s not like a Coors Light or a Canadian, just give me a beer, you get one of the two you don’t care; I have a funny feeling that cannabis consumers are much more picky with their cannabis. Is that why you’re focusing on the high brand?
John Fowler: Yeah, so first of all, I don’t think they’re getting more picky; I think Canadians have had access to subjectively some of the best quality cannabis in the world, for the last few decades. So Canadians, that starting point, that’s where we chose to build our business, be competitive with the illicit market. It’s not a pricing issue, it’s a quality issue that’s going to determine if legalization wins or not.
And quite frankly, you know, viewing a large panel of competitive products, you know, secret shopping, there’s a good stuff out there. There’s a lot of stuff that probably toes the line between comical or insulting to a consumer, depending on how you look at it. And quite frankly, it’s a big business risk for companies that aren’t able to put out what people want to buy.
So to use your beer example, you know, people forget, Budweiser, Coors Light, those are actually well-manufactured products with great brands that people love, and they’re not the cheapest price point in the store. So if you go to Kincardine where our facility is, those are premium product people buy on the weekend; there’s a whole lower category of beers that people might buy during the week, and unfortunately I think there’s a risk that some of the industry are in that lower-quality cannabis products.
Brandon Colwell: Yeah, I mean, I follow it a lot, and we’re constantly looking in our investors’ group, looking at people’s reviews, because at the end of the day, this is a new thing to a lot of people, and it’s unfortunate that a lot of the cannabis that people are getting, allegedly, of course, is not what they seem to want to be getting; especially not what they were getting on the gray market as well. but I have been talking to a lot of people, and actually I’ve had high praise for the 7ACRES cannabis. I believe you guys just won an award on it, as well.
John Fowler: Absolutely. So we’re honoured to win Brand of the Year a the Lipton Co awards, so it was a great validation actually; I think that was the most important award out there, because it’s really a team effort. It’s the cultivation, it’s the branding, it’s the sales and the market, the whole thing that comes together for that award.
But I think, you know, not looking the other way and you look forward, a gram of cannabis I think is roughly similar to a bottle of wine. It’s a big dose for one person; it’s a shareable personal for three, four, five people, depending who you are. And if look at right now, that bottle of wine runs about $5 on the low end to about $15 where our flagship strains are.
Well for us, what’s exciting about running the business isn’t just building new facilities to produce more cannabis, it’s to product better cannabis that we can sell at a better price point. So what’s on our objective list is, how do we get to the $20 price point, the $30 and the $50 price point, and cannabis consumers listening to this are going to laugh and say that makes no sense, but anyone who’s drank a bottle of wine knows that those are price points that Canadians are very comfortable with. Ad that’s the thesis of the deal with did with Khalifa Kush: they’re living that and embodying that at a market today.
So at a market that usually about $15 to $20 per gram, they’re selling it close to $30 per gram and gram of cola for most of their skus.
Brandon Colwell: Okay. Well, let’s switch gears a little bit here and go into the company itself. What have you been able to do with 7ACRES when it comes to production? How much production has come online, what are the stats right now for what you’re doing at Supreme?
John Fowler: Absolutely. So we are one of the youngest large LPs; we got licensed only back in 2016, so we’re all celebrating our third anniversary thing Spring. We’ve been very quick to bring on scale in our first facility. So 7ACRES is operating over 100,000 square feet of licensed facility, and we’re producing about 12,000 to 13,000 kilograms per year at that run rate.
Well what’s exciting is, this is a project that we’re really close to the end on. We’re expecting completion of all of our flowering rooms by the end of the month; licensing, obviously, will take a little longer through the spring, but through the middle of the next year, we expected that full ramp of roughly 50000 kilos per year, which, when you look at the price points for achieving and the quality, I think makes that one of the most attractive businesses in the country.
Brandon Colwell: And just to go back a little bit on the business, because the business to consumer, how you guys switch over to that for recreation – do you guys have a mixture of 50/50? Will you go half business to business, half business to consumer, or are we seeing a shift? Are you seeing you’d much rather being the stores opposed to selling wholesale to different LPs?
John Fowler: For us, it’s a shift over time. But really, it’s the same business. So if you look at, our goal is to create a compelling retail brands and not be the retailer. So we made a list of all the great brands that Canada has produced over the last three decades and a lot of great companies there.
When you look at a list of great Canadian retailers, unfortunately it’s a much smaller list. And that really was one of our original thesis around why we didn’t want to get into the retail business.
In medical, that mean B2B sales through other licensed producer partners such as Tilray, that purchased our purchased our product and do a great job with the packaging, the medical sales and marketing, and all that. On the recreational side, it’s about working with the provincial public and private retailers, same concept: we produce a great product, we produce our brand, but we don’t control that final point of sale.
And in the short term, what that really allows is, we can focus on the quality of the product, we can focus on the brand, and we can focus on driving that national distribution, where currently our flower is available from British Columbia through to PEI.
Brandon Colwell: Gotcha. And when it comes to your stock itself, are we looking at different exchanges through the US, or going to up on TSX – what are you guys looking for right now?
John Fowler: Definitely something that we’re looking at, so a big catalyst for us was completing our $100million financing with Bank of Montreal and GMP about a month and a half ago. That was the last condition we needed to pursue an uplist from the Venture Exchange to the TSX proper, as we were excited to get that underway.
And then of course, you know, we’re looking at the US Exchanges and the increase in liquidity and investor awareness we can get from that, and we’re working through the internal/external requirements to get there. It’s actually one reason at our AGM next week we’re seeing shareholder approval for a potential consolidation to assist with the margin- ability of the stock and the attractiveness for institutional investors, but also to help us get there in terms of the list of requirements should the management and the Board decide we’re going to take the company.
Brandon Colwell: Yeah, actually, that was a question of mine from a Taylor and Ian Richardson from the YouTube channel just before you came on. I asked them about what questions you have, and that was one of them, for the 7 to 1o split. The reason behind it, are you still going to move forward with it? When it comes to that 7 to 1 split, if it is voted in, and it was voted as yes, you can do that, does that necessarily mean you’re going to go 7 to 1, or does that give you the ability to do something within that range should you see that fit to get on the US Exchange?
John Fowler: It was 5 to 1.
Brandon Colwell: Forgive me.
John Fowler: And it’s up to five to one. So what we want now from our shareholders is the permission to pursue this and consider it moving forward, specifically to meet the listing requirements if we decide we want to take the company onto the Exchanges.
I understand a lot of the concern around perhaps some fears, how consolidation can be as negatively, but as one of the fastest-growing LPs, we’re number six in the country in revenue and growing quickly, and we’re well capitalized from our last financing.
So really, this is a position of strength to improve the liquidity company and build more value for shareholders over time.
Brandon Colwell: Gotcha. And coming to 2019, we’re almost finished 2018, I can’t believe how quickly this year has actually flown by. When it comes to 2019, what is the focus of Supreme, and what are you most excited about?
John Fowler: So for me, it’s finishing the 7ACRES project. You know, for me, that’s been a passion project since we started in 2013, so seeing that thing hum at full capacity. But in terms of catalysts, it’s continuing to grow revenue. This is a consumer goods business; this is about revenue, and it’s about the quality of revenue. And for the last years, I think this business has focused too much on cost. You know, margin is the delta between cost and price, and we really focus on how we can drive price point, and I don’t just mean ramping up prices for the same product; I mean, creating higher value products that consumers are happy to buy. Because when you look at the impact of a price increase versus a cost decrease, generally speaking, that price increase is far more valuable in terms of positive impact to our bottom line.
So we’re really excited to continue on that, and then in terms of other projects, we’ve got our Lot 16 projects, that’s the California style. Again, that’s looking to spend a little bit more on the operating costs, grow some strains that take longer to mature, need a little bit more love and care, but we think we can hit even higher high points. You know, for domestics, that’s going to be an exciting 2019 for us, and then I’m sure what every cannabis company is talking about, all the derivate products.
Brandon Colwell: Exactly.
John Fowler: Concentrates, vape pens, etcetera. And what’s really exciting there is, if you look at flower plus the other smokeable products, such as vape pens and concentrates, in most markets, they’re 70 to 80 percent of the market right there. And the key to doing well in downstream products that are ingested that way, is high-end flower. So if you look at the best concentrates companies, the best vape pens, etcetera, the ones who have a really strong margin over time, they all start with really great flowers input.
So having that foresight to invest in 7ACRES and the quality of the flower there, not only allows us to be a leader in that space, but is going to be our key advantage as we move into the downstream products of Canada.
Brandon Colwell: Yeah, I’ll be very interested when those do start happening because everyone’s talking about vapes and I was always really surprised it wasn’t allowed in Bill C45, but at the end of the day, it was a give a little, get a little thing to get that through. But I imagine that’s going to be coming down the pipeline very soon. I know, no pun intended, of course, but it just makes sense to have that as a product offering.
John Fowler: I think we have to understand, the legalization, the vaping products is happening at the same time as Canada and the Unites States is struggling on how to regulate e-cigarettes. So we’ve seen, for example, a crackdown recently on flavouring agents; well, that plays very well for Supreme. A lot of vape pens in the Unites States and in the gray market here are distillates of, you know, cannabis THD with artificial flavours. And that can be a nice product for some people. It’s generally al low-margin product, because there’s not a lot to protect the brand.
If you take those flavourings out, you need the really good cannabis that’s rich in terpenes and has a pleasing aroma to extract that and put that into the vape pen to make something that customers are going to want. So for us, you know, seeing those restrictions on flavourings and anticipating we’ll see the same in the vaporization regulation when we get them, actually really plays into our strategy and will help us be a market leader in the vape category.
Brandon Colwell: That’s an interesting point, actually. I appreciate it. It’s kind of like that flavoured alcohol, right? You can put any flavour if you’re throwing all the sugar and everything else into it, but if you’re having it by itself you drink a whiskey by itself, you’re going to notice the flavour and quality of a whiskey; same goes with flower, as well.
John Fowler: And I’m guess the last time you bought whiskey, you didn’t bend over and go to the bottom shelf, either.
Brandon Colwell: No, I’m a Gibbon’s Rare man. I’m little picky with it. But no, I appreciate your time for coming on the show. For any of those who don’t know, FIRE is the ticker, your website for where they can find out more information?
John Fowler: www.supreme.ca, nice and easy.
Brandon Colwell: Perfect. Thank you very much for coming on the show, I appreciate it very much.
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