Newstrike Brands Ltd (CVE:HIP) Niagara Production Facility Expansion

Newstrike Brands Ltd (CVE:HIP) (OTCMKTS:NWKRF) (FRA:0N8) CEO Jay Wilgar shares details of the company’s recreational successes and Niagara operations. Newstrike is one of just 7 LPs with product available in at least 7 provinces. Newstrike is currently completing the expansion of its 500,000 square foot Niagara production facility. When at full capacity in 2020, the location will produce 23,000 kilos annually. Newstrike is also focused on preparing for the roll out of vapes, edibles, and derivatives when those products are legalized in October. Wilgar admits that “nobody is killing it in Canada yet” in terms of recreational sales and notes the company wants to perfect its Canadian operations before following through on international opportunities.

Transcript:

James West:   Joining me now is Jay Wilgar, CEO of Newstrike Brands. Jay, Welcome back.

Jay Wilgar:   Thank you very much for having me back.

James West:   Jay, what’s 2019 looking like for Newstrike Brands?

Jay Wilgar:   Well, I think 2018 behind us was a very exciting year

James West:   The end of the year sure could have used a different ending.

Jay Wilgar:   Well, it could have, yeah, I mean, that wasn’t the most exciting part, but 2019 is going to be really big for us. We look at going into the fact that we are one of seven licensed producers in at least seven provinces herein Canada, and that’s huge for us.

James West:   You sell in the cannabis store in Ontario, right?

Jay Wilgar:   We do.

James West:   We just bought some of your cannabis.

Jay Wilgar:   What did you buy? What did you get?

James West:   I can’t remember, but I bought it like two weeks ago, it just got here –

Jay Wilgar:   Fantastic.

James West:   And we’re actually putting a panel together to sample all of the licensed producers’ product, and we’re actually going to go a giant bong hit each and then we’re going to interview each other about the quality of the marijuana.

Jay Wilgar:   I will hope that you like our product. I’m sure you will; it’s been getting great reviews.

James West:   Oh, good.

Jay Wilgar:   Certainly our Meridian is the most popular of the dried bud products that we have, but no, we’ve brought some great new staff on, we had an announcement on Monday; some really big hitters from the branding and marketing world, Sylvie is joining us in a couple of weeks; her background is Johnson and Johnson. We just brought on Mark Burton, head of strategy; he’s been a CEO of several things himself. Legal background, and a new specialist just in oil production. And our Niagara site, I’ve got to get you out there; it is something to see.

James West:   Oh really? It’s ready to go?

Jay Wilgar:   Well, it’s in production, it’s been in production I guess three months now, and then the second phase of it is going to be finished in two more months.

James West:   So you’ve got a crop coming to maturity, now?

Jay Wilgar:   We’ve got crops that are actually through maturity.

James West:   Oh, okay, we’ll come down there, we’re looking for something to shoot this week.

Jay Wilgar:   Well, if you w ant to come down and you let me know. It really is something to see. It’s the Dutch Trace system, it’s a pretty big site, it’s 500,000 square feet, and so of course also with our partnership with the Neill brothers, the idea is that we’re really diving now into the edibles side of things, and kind of some of the exciting stuff we can do.

James West:   Oh, cool. When can we actually buy edibles at the Ontario Cannabis Store, do you think?

Jay Wilgar:   Again, you know, it’s so dependent. We’re certainly going to be ready for the fall, if not in advance of that. So we’ve been really focused on being ready for the edibles market and certainly the vape pen market; we are very active in those two markets now in making sure that whatever the timeline ends up being, that we’re going to be ready for it. So we’re expecting October, I think, next fall, is really the timeline.

James West:   Okay, I’m curious, maybe you can answer one thing for me: so there’s all this mainstream media coverage out there suggesting the shortage of legal cannabis in Canada could persist for years, and I’m having a hard time reconciling that with the growing capacity currently and in 12 months, by which times it time it goes up by like 30 percent more growing capacity.

So if we’ve got all this capacity, and yet the stores are selling out, and you can only buy 30 grams at a time, I’m just curious, why is this discrepancy? It doesn’t make sense. You look at the production capacity of all the LPs, we should have no problem.

Jay Wilgar:   So it’s an interesting point, because this has been something we’ve been discussing from Day One, and for me it’s been a bit of a frustration, because you know, when we as a company have been announcing capacity, we’ve been announcing what we’re actually going to be producing, and you know, we’ve been very open with our shareholders that Niagara will bring on 17,000 kilograms of capacity that we can produce this year, but the second phase of it, which is being built right now, will bring on another 23,000 by next year. And of course, all of these announcements that we, collectively, as LPs, are making, are always subject to, you know, Health Canada, to approvals, and that process, I think everyone always forgets: that it’s not as easy as hey, guess what, we just opened a greenhouse over here and it’s a million square feet. You know, we’re going to bring all this production on.

There really is a process to it, and that’s why I’d love you to come down and see it, because the one thing too is, you know, think about a greenhouse like ours that was actually there before and was producing plants; we bought that, we’re in the process of converting it. We’re now training staff that need to be brought up to speed some pretty serious standard operating procedures, and that’s pretty important; training people to trim, training people to grow, getting your packing line set up. So by hearing that that shortfall may persist much longer than people think, because I think most LPs are going to be online with as much capacity as maybe they’ve indicated, as quickly as they will be. I mean –

James West:   Are you saying those forward-looking statements aren’t actually going to turn out to true?

Jay Wilgar:   I will not comment on anyone else; I can tell you where I know we’re going to be, but I will tell you when people, you know, there have been a lot of very big announcements about enormous production facilities, and I can tell you as the person who is reporting to my shareholders on how quickly I can bring something online, it takes time. It just does. It’s hiring the right – and Niagara is a great example. It’s a very good-sized facility, and we’re almost at 200 staff within the company, and we’re going to need another 100 by the summer. You just don’t pull these people out of thin air and teach them how to do it, and I think the other thing too is learning how to grow indoors in huge quantities like we’re all doing, is tricky. There are things to it, you know, tricks that you need to learn, and as far as keeping quality consistent, and all these things.

So I think that’s another piece. So look, I’m certainly not saying that the forward-looking statements of other companies are incorrect, but I think that the idea that a shortage may persist for quite some time, I’d stick with that, and I also think that, as I’ve said actually on the show before, the whole thing is process, right?

James West:   Sure.

Jay Wilgar:   Because when I look at our business model, selling dried bud is certainly a big part of it, but when I look at the oils side of things and vape pens we see huge numbers of new customers coming into hat market, and quite frankly a lot of people that probably weren’t using that much cannabis before. I think that’s going to create a really interesting upside for what’s happening in the industry.

James West:   Sure, you bet. So tell me, how are your financials shaping up to for 2019. You’re obviously going to be able to supply more cannabis as the year goes on; are you in a state yet where you’re projecting profitability?

Jay Wilgar:   We are. Right now, we’re looking at fourth quarter next year, realistically. We’ve ramped up our production, like I said, and Niagara is going to get us to the 17,000 kilogram mark by next year. I think from a balance sheet point of view, Newstrike’s in a very strong spot, and we’re sitting on about $100 million in cash right now, we have no debt, we own both of our facilities outright, so once we do a few things that I’m working on as well as finishing off what’s happening in Niagara, you know, we’re still going to be sitting on a really, really strong balance sheet, and then we look at some really good revenues for the year. So I think 2019 is going to be really exciting, you know, from the point of view of products and from the point of view of seeing how companies actually start generating the revenues that, you know, we’ve been talking about. We certainly think we’re going to be there.

James West:   Do you have any ambition towards a global sort of play in any other jurisdictions?

Jay Wilgar:   So we do, and I – but I’ve always stuck to the messaging, and I think it’s important that nobody’d killing it Canada yet, nobody – and I’m saying that across the board. So what we continue to look at is the fact that we are one of very few companies that have national coverage when it comes to provinces, so I want to make sure that we’re executing correctly in each one of these provinces before I get too excited about going off and doing things internationally. We’ve got a lot of opportunity, and we continue to look internationally. But you know, the funny stat is, if you look at third quarter last year, LPs combined in Canada only exported around 800 kilograms of product. So if you compare, you know, the size of the actual market in Canada, which is, again, not being serviced, and look at opportunities internationally, our view is really let’s make sure we’re good at what we’re doing here first, before we go off and try and do things everywhere else.

You know, certainly with an eye to those other places; you know, I see opportunities certainly in Europe and UK. South America, I think, is interesting, but again, from a regulatory point of view, it may be the strongest regulations right here at this moment, and I think it’s also the most exciting market, in my view.

James West:   Sure. The recent lottery that awarded 25 licenses to 24 different individuals which, from our perspective, is probably 20 bankruptcies and five new stores – what in that process do you think is going to be the outcome in terms of new, physical locations to buy cannabis in Ontario?

Jay Wilgar:   I think the first thing is, we certainly understand what the government was doing from the get-go in trying to get privatized retail outlets and I think, quite frankly, from our point of view, it’s going to create an interesting opportunity for us to get products out to the consumers. But again, I think it’s going to be bumpy for the next little while. We’re going to see this transition from an online system that I think is working but still undersupplied, to a group of retail stores that, you know, again, from a management point of view, and from, you know, the aspects of an actual business, we’re not sure how those are going to run.

James West:   Sure.

Jay Wilgar:   We don’t know yet what that shelf space is going to look like, and I continue to say the same thing: even that aspect of the business is going to take time and it’s going to evolve, because we know darn well we’re going to go to, you know, hundreds of retail locations in Ontario, and ultimately, competition is going to win out. We are going to see retail stores that people like, we’re going to see products in those store that people like and are attracted to, and ultimately that’s what at Newstrike we’re banking on. Were banking on the fact that customers are going to start wanting to have brands that they associate with, and they’re going to want to buy it in retail locations that they like.

So it’s going to be interesting, I think it’s going to be frustrating for certain people, and even when you see these municipalities that are opting out of having cannabis stores int heir municipalities, at least to me, you know, that’s not solving an issue that you think you might have; I think, quite frankly, it’s a political thing that doesn’t make much sense.

James West:   Sure. As an LP operator, are you confident that the sort of process to allow retail stores fronts, actual physical locations, will eventually be extended to LPs beyond their single store allotment?

Jay Wilgar:   I don’t know. I think again, I think the way they’re rolling it out right now is not entirely illogical in the thinking of ‘let’s try and get others into the industry’. Certainly I think there’s some logic in my mind if they’re allowing us to have one flagship-type store, new certainly understand the products and we understand the supply chains and whatnot. There’s some logic, in my view, of also having this, even if it’s a percentage, like it is elsewhere. To me, that’s logical. Whether they go that route or not, we don’t know, and we certainly continue to work very closely with the provincial government as it relates to retail.

But right now, again, the focus is, in our view, whatever the retail environment we are in in this country, let’s make sure we’ve got a suite of products that Canadians want to use and that they can identify with, and that they actually want. Because I think that’s the other key thing: is I think a lot o f people still don’t know what it is they want, yet. So we’re trying to, you know, we’re trying to make things that are attractive to people. And in 2019 I think you’re going to see, certainly from us, some really interesting things rolled out that are going to excite a lot of people.

James West:   Okay, well that’s great, Jay. We’re going to leave it there for now and have you back soon. Thank you very much.

Jay Wilgar:   Thank you very much for having me.

Original article: Newstrike Brands Ltd (CVE:HIP) Niagara Production Facility Expansion

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