Province Brands CEO on Proposed Health Canada Edibles and Extracts Regulations

Province Brands CEO Dooma Wendschuh shares details of the company’s expansion and financing plans, as well as his thoughts on Health Canada’s draft regulations for additional cannabis products. Wendschuh notes that the company’s 123,000 square foot cannabis brewery is under construction in Grimsby, Ontario. Province Brands is raising capital through a brokered round and plans to go public upon the completion of the current financing round. The company’s shares are $2.30 and half warrants are $2.85 in the brokered round, which will result in a valuation of $112 million if all warrants are included. While Wendschuh believes most of the proposed Health Canada regulations for edibles and extracts are sensible, he notes that the provision that cannabis adult beverages cannot have appearance and branding elements in common with alcohol isn’t in the interest of public safety and potentially impacts the company’s ability to partner with traditional craft breweries.

Transcript:

James West:   The CEO from Province Brands, Dooma Wendschuh, is joining us live from Îles de la Madeleine in the mouth of the St. Lawrence River. Dooma, how are you my friend?

Dooma Wendschuh:   Fantastic! How are you?

James West:   We’re doing pretty too.  Are you actually on Îles de la Madeleine?

Dooma Wendschuh:   In fact I am, yes.

James West:   Wow, and how is the weather there today?

Dooma Wendschuh:   It’s about 20 centimeters of snow. But other than that, it’s beautiful.

James West:   Yeah, I bet. Well, I can’t wait to get out there one day. Did you happen to see our segment that we just ran on you by Sean Cookson and the 4East people on your excellent brewing?

Dooma Wendschuh:   By far the best video I’ve seen on Province Brands all year but years young.

James West:   Oh, yeah how that goes.

Dooma Wendschuh:   And I don’t recommend trying to brew a beer from cannabis using the technique that Sean demonstrated. It will not work. You will not have any intoxicating effect and you might scratch your throat. But yeah, I thought it was great. Thank you so much for filming that

James West:   No, of course! So Dooma, tell us what’s the status? You’re still building your plant down there, down the road from here in Grimsby are you?

Dooma Wendschuh:   We are in fact under construction on a hundred and twenty three thousand square foot facility in Grimsby, Ontario, which will be the world’s first cannabis brewery. It has been a really exciting ride watching this thing come together.

And right now we are raising capital to advance the construction of this through a broker round with Paradigm and then simultaneous non broker round that we’re sort of steering on our own and it’s going great.

James West:   Okay, so some of our audiences is watching in real time now and so if they were clients of Paradigm Capital, they could participate in this private placement?

Dooma Wendschuh:   Absolutely or any other broker could also subscribe through. Brokers know how to get in touch with each other.

James West:   And so when are you going to go public?

Dooma Wendschuh:   It is upon the completion of this round. It’s going pretty well. It took a little bit longer than we thought due to the slowdown in the market towards the end of the year, but now we have way more interest than we have room for and it’s just settling out the big check writers and it should be done pretty soon and it’s not guaranteed. But again, the intent is to be public as soon as this round is complete.

Ed Milewski:  How much money is being raised, Dooma?

Dooma Wendschuh:   At present it’s 30 million Canadian dollars. And as I mentioned we have indications that far exceed that from where we’re at right now.

Ed Milewski:  Okay, Okay.

James West:   Well, that’s fantastic. So, when do you think you’re going to start producing cannabis beer?

Dooma Wendschuh:   We are producing cannabis beer right now, but mostly for testing purposes. We’re not able to sell it until October of 2019. We did announce a while ago that we will make a beer from hemp that contains alcohol. Well all of our marijuana beers, of course are alcohol free. This hemp beer is something that we intend to have on the market sooner than October 2019, ideally towards the end of the first quarter, beginning of the second quarter of this year.

James West:   Well fantastic! The progress towards the legalization of cannabis infused beverages in Canada, is that on track at this point from what you understand? Are there any hiccups in this progress? And is there any chance it will happen sooner?

Dooma Wendschuh:   There is no chance it will happen sooner. We now have confirmation from the government that beverages will be legal and will be for sale by October 17th of 2019. So it probably won’t be a day before that but we’re all very excited for that day. What happened was about three weeks ago the government released their draft regulations and a lot of folks weren’t sure if beverages would even be included in those draft regulations or if they would try to delay them. But, they were not delayed. Beverages will be available at the same time as edibles October 17th, 2019.

The regulations for the most part were sensible and we support them. There was one proposed regulation in particular which we think is not in the interest of Public Health, which is a regulation that cannabis beverages cannot have any branding shared with alcohol companies and cannot have any elements in common with alcohol products. Of course if you want to keep cannabis beverages out of the hands of children, our opinion is that you should associate it with alcohol and have it served in the same sort of bottles as alcohol and the same form factors as alcohol because children are raised not to drink alcohol.

It’s been around for millennia and they know what that bottle looks like. Whether it’s a beer bottle or wine bottle, they know what those brands are. And and so this proposed regulation to sort of disassociate cannabis adult beverages from alcoholic adult beverages seems to really fly in the face of Public Safety, but we’ll see how it goes. And there’s a 60-day comment period and we’ll certainly be commenting on that regulation.

James West:   I’m going I’m going to comment right now. I think booze and drugs are a natural fit personally.

Ed Milewski:  You feel way better when you do both.

James West:   Absolutely. Yeah, one would argue that you have less alcohol consumption if you involve cannabis during the uptake of both and you also have way less subsequently the hangover.

Ed Milewski:  It’s a way of cutting down your costs.

James West:   Plus you’re driving gets so much better. [Laughter]

Ed Milewski:  Jesus, wait a minute now.

James West:   Was that my outside voice? I meant driving my tricycle in the backyard.

Ed Milewski:  You’re talking about hitting golf balls, driving golf carts.

James West:   Exactly.

Dooma Wendschuh:   I hope that’s all you’re talking about. You should never drive under the influence of either.

Ed Milewski:  Dooma, I interviewed the gentleman, can’t remember the name of the gentleman, but the ticker is BEER.

Dooma Wendschuh:   We know these guys, Hills Street Brewing. They’re fantastic.

Ed Milewski:  Yeah, you know the product I thought was phenomenal and I mean their market cap is not very big maybe as a company you should buy or something. Just throwing it out there. [Laughter]

Dooma Wendschuh:   We get along very well with those guys and I’ll take that under advisement.

Ed Milewski:  There you go.

James West:   Great, Dooma. So you see got a $30 Million round that’s going to close soon. That’s fantastic, congratulations on that. On track to pop our first beer together legally on October 17th this year, which is you know, even though this is only January we know how time flies.

Dooma Wendschuh:   It’ll be here before you know it.

Ed Milewski:  Tempo fugit or whatever it is it in Pig Latin? The time flies. Dooma, I have one more question, I have, what’s the price of the unit? What’s the price of your…

James West:   Whoa, whose unit you talking about?

Dooma Wendschuh:   [Laughter]

Ed Milewski:  No, no, talking about the shares that were of the 30 million, right? What’s the price of the share?

James West:   How much a share?

Dooma Wendschuh:   $ 2.30 per share and there’s a half warrant at $2.85. So for every two shares you purchase you have a warrant to purchase a third at $2.85, every time the next two years.

Ed Milewski:  How long is the warrant good for?

Dooma Wendschuh:   Two years.

James West:   So, what’s the post-money valuation?

Dooma Wendschuh:   If you include all of the warrants the post-money valuation would be about 112 million Canadian dollars. If you don’t include the warrants, it’s 95 million Canadian dollars.

James West:   Wow. Nice work. Well, there’s value creation 101 right there. When did you start raising money for this first?

Dooma Wendschuh:   We started Province Brands in September of 2016. We did a raise around that time. We raised 4.1 million dollars and it was at a 15 million dollar pre-money valuation.

James West:   Wow. So all the shareholders are happy at this point I guess.

Dooma Wendschuh:   Seem very happy and we have a great relationship with our shareholders. We do send a weekly update to everyone who is a current shareholder of the company and several of them are invited to participate in our weekly calls and really act as part of our team.

James West:   Yeah. Dooma, I’ve noticed that you’ve been starting to partner with some of the smaller craft brewers in Ontario. Is that part of your strategy going forward to capture market share across the country?

Dooma Wendschuh:   A huge part of our strategy is to partner with other companies whether they’re brewers or licensed producers or just about anybody who would like to make a cannabis beer with their brand on it. Now, we have announced seven partnerships to date with licensed producers and breweries who would like to launch marijuana beers with their brand name on it and to do it in the facility, which we are constructing currently. We believe this will be the only facility in the world where you can brew a beer from cannabis in a legal way and one of the few facilities in the world where you can make a beer infused with cannabis in a legal way. So it is a great location for folks to develop their own beers and to focus and for us to co-pack for them.

Now these proposed regulations that came out just a few weeks ago do make it, do propose to make it challenging for alcohol companies to launch a beer with their brand name on it, which may make it difficult for some of our co-packing partners to go forward with their plans. Again, it is our hope that that particular proposed regulation will not make it into a final regulations and we are continuing to to negotiate and close partnerships with other alcohol beer companies to help them bring their own cannabis beers to market one way or another.

James West:   So, is the intention in your assessment, is the intention on the part of the government to keep alcohol producers out of the cannabis game altogether?

Dooma Wendschuh:   My gut and my sense is that this is something that the government hasn’t thought through very well because again, it’s not really in the interest of children. My gut is that this is something that the cannabis producers who have their own lobbying dollars are sort of forcing upon the government or strongly suggesting that the government, you know puts into law because the cannabis producers are scared.  You know, these big license producers, hey don’t want these big alcohol companies with their unlimited budgets coming in and competing with the cannabis companies that are out there. I can understand just about any type of mechanism that the government may want to put in to protect our own homegrown industry. I think that’s the great thing, but it shouldn’t come at the expense of our children.

James West:   Oh, well, well said, Dooma! As usual a pleasure to talk to you, Dooma and we wish you all the best in your continued development of the brewery and Grimsby. We’ll talk to you again soon.

Ed Milewski:  Thank you very much.

Dooma Wendschuh:   Happy New Years. Thanks.

James West & Ed Milewski:    Happy New Year.

Original article: Province Brands CEO on Proposed Health Canada Edibles and Extracts Regulations

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