Cannabis Compliance Inc VP on Canada’s Cannabis Knowledge Advantage

Cannabis Compliance Inc Vice President Deepak Anand shares his views on the supply issues plaguing both the recreational and medical sides of the cannabis space in Canada. Anand is excited about the possibility of medical cannabis imports to Canada and how imports will impact pricing. He anticipates that there will be a supply shortage for at least the next year and predicts that much of the 2019 capacity coming online will be exported to international markets. He notes that companies like Canopy Growth Corp (TSE:WEED) (NYSE:CGC) (FRA:11L1) have already exported medical cannabis to the United States for research purposes. Anand believes that there are opportunities for Canadian cannabis companies to provide industry know-how as new markets come online, but that Canada risks losing this advantage if the country falls behind policy trends and developments, such as advertising and branding. Cannabis Compliance Inc believes that US de-prohibition or legalization of cannabis at the federal level with create huge compliance issues for existing companies and will drastically change how medical cannabis companies operate in the United States.

Transcript:

Brandon Colwell:   And we’re back in studio today with Deepak Anand, VP of Government Relations for CCI. Welcome back.

Deepak Anand: Thanks for having me.

Brandon Colwell:   Absolutely. And the last time you spoke, it was just after legalization, and now we’ve had a good month and a half since then. What’s been going on?

Deepak Anand: Yeah, lots. I mean, clearly you’ve seen SPY issues across the country; you know, we’ve seen the AGLC in Alberta looking at limiting sort of the number of new stores that they’re approving. You’ve seen PLE product chargers in the Alberta market. Quebec has seen the same thing; you know, a lot of shortages in that market. The SPDC has done a limiting the hours that they’re operating. So certainly supply problems on the recreational side, but what we’re also seeing is medical cannabis patients actually don’t have enough product, and we’ve seen various licensed producers not have much inventory in terms of supply medical patients.

And then one of the other things we’ve also seen is a significant increase in the sort on product, what’s not used to.

Brandon Colwell:   Yeah, and it’s interesting, because a lot of people were concerned that the demand wasn’t going to be there, or that, you know, exactly what’s happening now: we have this incredible supply crunch. But if you look at the different companies, a lot of them, you see 2019 is going to be the year where a lot of their production is coming into production. Facilities are being finished. In your experience, do you think that’s enough for 2019? Do you think we’re still going to be in somewhat of a supply crunch moving forward?

Deepak Anand: Yeah, that’s very interesting. I mean, there’ certainly going to be a lot of facilities coming online; I mean, the big unknown in my mind at this point is imports, and sort of when that triggers in. And that’s really going to speak to not just pricing, but also how much availability of product comes in.

Now keep in mind, imports can only be for medical purposes, so it’s not going to affect the recreational market. But certainly it’s going to have a factor to play in terms of the overall strategy and pricing they’re in.

But I certainly expect some of the companies that have sort of come out and said you know, that they’ve got these massive facilities coming online, I’ve seen a lot of working happening, and they will in fact come online and I think they will address the supply situation, but we’ll still be in a shortage kind of pattern until, you know, at least for the next year.

Brandon Colwell:        Well yeah, and look at, we’ll use this as a segue into the world: look at even just the exporting opportunity for those companies who are GMP certified, who have the connections and affiliations and – it seems like almost the entire world now. It keeps growing, but at least a dozen different countries right now. And even as that supply comes on, when you can get a really good premium by exporting, I’m an economist through and through. I love the fact that we’re about to be exporting this product in such a massive quantity. It’s great for our country.

But even if you have all that product coming on, does it stay in Canada, or does it go abroad where you can possibly get a better margin for it?

Deepak Anand: The dominoes are falling, so as to say, and I mean, we literally almost wake up daily and see new countries passing legislation. You know, yesterday South Korea just announced that they’re going to be going through medical cannabis.

Brandon Colwell:   Amazing, eh?

Deepak Anand: Yeah. It’s very, very interesting, and here was a country that, you know, when we legalized cannabis, said, you know, they warned their students not to consume cannabis in Canada for recreational purposes because it would have significant impacts on them. And so the fact that they are now moving towards medical is going to be significant, and it goes back to speaking to what you were talking about, which is, the real opportunities for licensed producers on a global scale now. You know, it doesn’t seem to be slowing down; in fact, it’s expedited, you know, significantly.

The UK just legalized, there’s a whole bunch of product going into the UK, you know, South Korea is now onboard, Czech Republic, we just saw Aurora make an announcement that they were going to be exporting product into the Czech Republic, which has had its cultivation program, but clearly they’re having a number of issues.

And as you correctly pointed out, Brandon, you know, there’s only a few companies in Canada that currently have GMP, and that’s sort of the key to be able to export into a lot of these international markets that are set up for medical purposes.

Brandon Colwell:   Yeah. And you know, that’s something that we’ve been really watching in our community, but just in general as an investor, you know, you want to find a company that has a lot of growth potential still. And a lot of people will look at dilution of these larger companies, or they’ll look at, you know, they’re growing too fast. There’s always different arguments out there, but at the end of the day, within the next two years, America will be legalized. I strongly believe that, you know, that that’s a whole system still, but when that curtain comes down, these Canadian players, they need to be able to built to a point where they can actually compete with them, and not to mention just in general.

Not even thinking about the United States, as a Canadian company, the opportunity that’s there to be the know-how for these countries, which I believe in just from the state of having proper cannabis, having proper knowledge as a medicine, I really love that side. But also taking the business side, there is an immense opportunity here, and it looks like they’re really, especially the likes of Aurora, Wayland, Canopy, they’re spreading like crazy. I love it.

Deepak Anand: Yeah, no, absolutely, and there’s where IP comes into the extent. I mean, we’re having a lot of conversations around IP that licensed producers currently own, not just in Canada, but also internationally. I think you’re right on the US part; we will Federal legalization, at least for medical purposes, very soon. I think it’s definitely on the horizon, and that will have an impact on Canadian companies. You know, we’re seeing a lot of US companies currently interested in coming to Canada, but I think, you know, we may see some licensed producers going to the US as well when that does happen – at least medical purposes. And the cat is out of the bag to a certain extent. You’ve seen Canopy and Tilray obviously send product into the US for R&D purposes, which just shows you sort of the medical application and impact that some of the Canadian licensed producers have on the global scale – including the United States, which is going to have a very tightly regulated sort of system.

I was just at MJBiz on one of the panels, and that’s what I was saying, is that most people in the US I think, you know, think they want Federal legalization, at least for medical; but if you’re in the business in the US, it’s going to drastically, from a compliance perspective, change how you go about operating your business, because it’s very, very different in the US states that are legalized compared to how we work on a Federal basis with Health Canada.

Brandon Colwell:   It really is. So I was there as well in Vegas at the MJBiz conference, and I was blown away by how many people were there, but also how many knowledgeable people were there. Each time I go to one of these conferences, it seems like it changes, and I’m sure you can attest to all across the world; apps getting much more sophisticated. Even the business people who, a couple of years ago, if you were a connoisseur of cannabis, they called ‘the suits are coming’ – they’re doing their homework, and they’re very well-educated now, as well.

But just seeing the products that are available there, the branding, the packaging…I’ll say one thing, again from an investor standpoint, because that’s where I really stem my knowledge and my foundation around – Canada is in trouble if we do not revisit our marketing and our packaging laws, because the way the United States is doing it, they may be behind us in Federal laws; they are well ahead of us in product innovation, packaging and marketing.

Deepak Anand: Oh, absolutely. Leaps and bounds. I think people often ask me where is the future of cannabis, and in many ways, at least from the CPG side and the recreational side, it’s definitely California. I mean, you look at some of the brands that are coming out of there, it’s phenomenal what they’re doing, and you’re right – I mean, MJBiz showcased that we’re seeing a lot of global players, actually, people that are not from the US or Canada, that are involved in cannabis, from Israel to, you know, Colombia, Jamaica, South Africa, you know, Cyprus – there’s a whole bunch of countries where we’re seeing people start to look at IP and look at all of this, and really come online.

So you’re right, there is going to be very soon a lot of competition for Canadian licensed producers on the international scale, and you’re right, we need to start looking at this more from an industry perspective and getting ahead of some of these marketing and other regulations that will come in the way of licensed producers really scaling internationally.

Brandon Colwell:   Yeah, 100 percent it will, and don’t get me wrong; I understand where they came from, this is a sweeping legislation, you had to give a little to make sure that the bill went through, and when you really look at it, the only thing, in my personal opinion, that these packaging and the way they’re doing their marketing – the only thing that helps is for the gray market to continue to thrive, where they can – you can get an app right now in Toronto and have cannabis sent to from anywhere, that’s not an LP. That’s still thriving. We really need to get ahold of it.

But in general, though, it’s been really exciting seeing this come to fruition from the last five years I’ve been paying attention to this, where people used to laugh at the fact of a legal cannabis, you know, economy, and having that available, to now countries you would bet against them legalizing, like South Korea, are now coming through because they see the medical aspect of it. But I think they’re also kind of seeing why are we policing this, still? It’s kind of foolish.

Deepak Anand: Absolutely. I think as Canadians we’re now known, at least when I travel internationally, it’s very much on cannabis policy and we’re known for our cannabis policy, but we need to make sure that we keep ahead of this and make sure that we are one step ahead of this from an industry perspective, because very quickly we could start lagging the world. And you know, there are a number of things that we will fall behind on if we don’t sort of change the legislation on packaging. Branding is one of them, but even edibles – you know, what is that legislation going to look like? Is that going to allow us to be the California of the world, really, in many cases? Are we going to be able to compete on that stage?

Because the second that US sort of legalizes for recreational purposes, it’s going to be very challenging for Canadian licensed producers to compete if we are subject to, continually subject to, restrictions.

Brandon Colwell:   Yeah. I wholeheartedly believe and, you know, in no way do I think that the people who are involved with Health Canada and all that, are not intelligent. They see this. They understand that. But it’s a process, you know. You don’t just change cannabis legalities after, what, 100 years or so of being illegal. So it is a process; I just hope they continue to get it right.

But really quickly, on a sense of recreation: a lot of people are curious about Ontario coming up April 1^st, the legislation was now, for the most part, has come out, and there’s an interesting clause in there that I was reading up on, where I forget the exact wording of it, but it’s a legal term. We’re essentially, as an operator, you’re allowed having 75 retail stores. As an LP, you’re only allowed having one, and I believe you’re only allowed having 9.99 percent ownership of a retail store.

But from the sounds of the wording, it is completely open for franchising. Are you able to talk about that little piece of wording? It almost seems like an Aurora or somebody could have a franchise and have 74 stores as a franchise, franchising them out. Is that true?

Deepak Anand: Well, there’s certainly some franchising ability available there, and you know, there are clauses. What’s the unknown at this point is, how far is the AGCA going to go in terms of financial due diligence to be able to look at what the ownership is and, you know, who truly benefits from this, what are they going to do on this. And they had a webinar today that was extremely informative in terms of helping prospective applicants for retail stores understand the landscape, and you know, we’ve posed this question to them on franchising, and I look forward to sort of working with them to fully understand how that might impact it.

But you’re right, I think there seems to be some avenues there to get through the franchising way.

Brandon Colwell:   Yeah, I wish, I didn’t have it written down, but there’s a certain word – there’s like three words in there, and some smart lawyer picked up and said, wait a second: so you’re telling me I could franchise? And everyone is like, what do you mean you could franchise? [laughter]

Deepak Anand: Yeah, yeah. Absolutely, yeah.

Brandon Colwell:   It’s always a curveball. Well, we always appreciate you coming on the show. What does CCI have going for the remainder of the year and going into next year? A little plug for everything that you guys are doing. What are you excited about?

Deepak Anand: Yeah, we’ve been extremely busy on the international stage; we’re now in 16 countries and growing literally daily. I’m sure we’ll be talking to South Korea soon. We’re doing a lot on the international side. As much as we are helping Canadian companies get licensed for cultivation and production and manufacturing on the Health Canada side, we’re also helping a lot of retail sort of businesses set up and get up and running, but really, we’re doing and leading international policy in many ways. We’re setting up offices all over the globe, and certainly starting with Europe, so we’re quite busy, internationally.

It’s great to be able to carry sort of the Canadian best practices in terms of regulations and help international governments kind of look at what they need to do from a policy perspective so they can get up and running very quickly.

Brandon Colwell:   Yeah, and I appreciate personally, again, going back to that investor side of me, because it’s hard to disseminate all the information. There’s a lot of jargon out there, there’s a lot of hearsay, so being able to see a company like yourself and just knowing what’s going on in the world, and keeping on track, and knowing that if you guys are covering somebody you’ve done your due diligence on them and you understand that those people are walking the proper walk as opposed to what everyone else is doing. So it really does help investors, but as a country and just throughout the world, I appreciate the work you guys are doing. Because I love this, I love seeing this happen. I’ve been a cannabis enthusiast for many, many years; to see it come to fruition now is great, but there’s a lot more still to go.

Deepak Anand: Indeed, very exciting.

Brandon Colwell:   Absolutely. Well, again, appreciate you having the show, always a pleasure, and you’re welcome back anytime.

Deepak Anand: Thanks for having me.

Original article: Cannabis Compliance Inc VP on Canada’s Cannabis Knowledge Advantage

©2018 Midas Letter. All Rights Reserved.