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Supreme Cannabis Company Inc (TSE:FIRE) 50 Percent Revenue Increase QOQ - YouTube
Channel: Midas Letter
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[Intro music]
James West: Nav Dhaliwal joins me now.
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He’s the CEO of Supreme Cannabis Company,
my apologies, trading on the TSX under the
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symbol FIRE.
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Nav, welcome back.
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Navdeep Dhaliwal: Thanks, James, good to be
here.
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James West: Actually, this is the first time
I’ve talked to you as the CEO.
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Navdeep Dhaliwal: Yeah, I believe so.
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James West: Well, that’s interesting.
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So you spent a lot of time as the CFO; to
say you know the company inside out is not
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an understatement.
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Navdeep Dhaliwal: Uh, yeah, I think you could
say that.
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John and I have been, you know, hard at work
for a long time, so, you know, a lot of growth,
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very fast pace.
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But yeah, I’ve been involved for about three
and a half years now.
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James West: Okay.
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What is the status of Supreme Cannabis’
development?
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What’s the whole footprint look like?
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Navdeep Dhaliwal: So our footprint is currently
120,000 square feet of cultivation.
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We’re about at a run rate of about 17,500
kilos a year.
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Construction is going to be completed on the
cultivation rooms here in the next month or
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so, and then the entire facility, which also
includes support infrastructure, centralized
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infrastructure, done in the next few months.
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But I would say more importantly, the status
is the markets realizing that flower consumers
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appreciate subjective quality, sensory characteristics…I
believe we’ve been successful at establishing
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ourselves as a premier cultivator with a premium
product, and that’s been recognized now
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with the brand 7Acres, which we believe is
one of the leading premium flower brands in
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the country.
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James West: Yes.
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I had a party called the Cannabis House Party,
and Supreme was one of the favourites of the
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company gathered.
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Navdeep Dhaliwal: I’m upset I didn’t get
an invite, James.
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James West: Well, actually, I’m surprised
I didn’t.
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it happened very all of a sudden, like it
seriously, we had an idea in the afternoon
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and we just invited who had passed through
the environment that day.
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But next time, Nav, next time.
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So Supreme has also got operations internationally.
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You mentioned that you had a something growing
in Lesotho.
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Navdeep Dhaliwal: Yeah, so we took a similar
view in terms of international.
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So domestically in Canada, our thesis on our
first business is very simple: you know, focus
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on somewhere where we can build a competitive
advantage.
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We believe that would be in premium flower
for the Canadian marketplace.
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Internationally, when we looked at the market,
we believe the international market is going
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to be primarily medical for the near term;
you know, we believe more and more rec countries
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will also emerge, but you know, with that
view, we wanted to make an investment in a
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producer of medical cannabis oils for international
markets.
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So we did a $10 million investment into a
company called MediGro, based in the Kingdom
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of Lesotho, with also a long-term supply agreement.
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So we’re quite happy with that investment;
the team is executing fantastically; you know,
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it’s comparable to Canadian operations.
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And we’re producing oil and we’re working
on opening up export channels.
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James West: Okay.
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So where would you ship oil to from Lesotho?
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Navdeep Dhaliwal: That’s yet to be determined.
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I think, you know, there’s, it’s, in a
previous life I dealt with physical commodities,
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and it’s all about opening up the channels.
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So I think there’s, for quite some time
you’re going to have a shortage of supply
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in the medical markets.
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This is a project that’s far ahead; we believe
it’s one of the most advanced international
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projects.
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So there’s the EU, there’s Canada, these
things still need to be established, and that’s
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where a lot of the work we’re doing right
now is in opening up that channel.
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James West: So then, is the progress of medical
normalization, I’m going to call it, of
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cannabis as a medicine, proceeding at the
same pace as it was in Canada in the earliest
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stages, or is it much slower in Europe?
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Navdeep Dhaliwal: Well, I would say it could
be either.
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It could be slower, it could be faster.
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So for example, I think many forget that Canada
had a fairly developed patient platform, you
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know.
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Patients have been accessing medical cannabis
for quite some time under the MMAR program,
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so Canadians had a lot of familiarity with
it, and it was a transition of supply chain
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and production.
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I think in European countries, I would say
it’s a much smaller patient base, much smaller
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access programs if any.
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However, it could go much faster if the supply
can catch up.
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So for example, Germany: Germany is going
into an established pharmacy distribution
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platform.
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So it could go either way, but on average,
I think it will take time compared to Canada,
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because supply is going to have to ramp up,
we’re going to have to see what the downstream
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markets look like.
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But, you know, that’s the opportunity.
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You know, picking where you want to play.
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James West: Right.
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The proliferation of CBD as a component of
wellness in North America – we’ve just
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seen the CBD rescheduled to Category 5…is
that happening in Europe as well?
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Is CBD being uptaken as a sort of immediately
available consumable for, call it, bioceutical
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or wellness, generally?
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Or is it still lumped in with THC as a sort
of drug?
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Navdeep Dhaliwal: I would say you have a few
markets.
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So one is, you have the food supplemental
market in terms of CBD being an ingredient;
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so there’s many companies in Europe today
operating that are selling CBD products.
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You have your tobacco alternative market in
terms of CBD flower being sold, CBD pre-rolls
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being sold, which is quite conducive to the
European market.
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It’s much more of a high-volume smoking
market, you know, more of a mellow experience,
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so to say.
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So I would say it’s actually a little bit
more clear than it is here.
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I think there’s a lot of confusion in terms
of, in the US with the Farm Bill, is it going
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to be FDA, you know, it’s not all that clear
yet.
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I think some companies have their own strategies
and views on it, but I would say Europe has
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a lot of opportunities when it comes to CBD-type
markets.
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James West: Sure.
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You have supply agreements with some of the
other LPs where you also supply cannabis to
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them.
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Does that interfere with the quantity of cannabis
you’re able to sell into the retail system?
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Navdeep Dhaliwal: No.
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I would say predominantly at the moment we’re
still selling into wholesale as we ramp up
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our packaging, which, you know, has played
well for us in terms of the brand.
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You know, introducing the brand to consumers,
and it’s highly coveted brand.
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So over time, we will scale that down, and
our intention is 7Acres will be predominantly
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for the social or recreational market, as
we call it.
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We believe there’s ample demand for that
product.
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We’re quite happy with our positioning at
the moment; you know, we believe there’s
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several competitors or peers that are producing
a comparable product, in our view, in the
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smoked flower market, and I think that’s
very important to define it as such; meaning,
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other products will be different.
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But in an environment, our view is, most of
the country, the supply side response is going
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to be in the lower to medium quality product
specs.
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We believe Canadian consumers are quite discerning,
and are looking for a premium flower product.
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So we feel quite good with our positioning
in terms of, we believe we’re probably one
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of the only ones doing it at scale, and I
think that’s something we really innovated
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and solved with the team at 7Acres is, you
know, how do you produce a premium product
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at scale?
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We think very few are doing it.
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James West: Yeah.
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Well, as a consumer of premium dried flower
myself, I find one of the biggest problems
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is that the process of irradiation that is
mandatory in Canada causes such a destruction
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in the quality of the smoke, ultimately, because
it has such an effect on the trichomes that
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are, you know, in the plant that make it what
it is.
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How do you overcome that process of irradiation,
and then combined with the amount of time
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it takes post-radiation for the product to
get into the hands of a consumer, to the point
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where it’s very dry?
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This is my big, long-winded way of saying
I’m disappointed, ultimately, with how dry
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all of the cannabis that I open up, that comes
in the mail, is in Canada.
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How do you deal with that to still deliver
a premium dried flower, and is that something
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that is going to remain a challenge for most
of the other LPs?
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Navdeep Dhaliwal: I agree with you, it’s
a big problem.
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So it’s something, even if you look back
at how we introduced it post-rec is, we really
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took an approach of ensuring that the product
was fresh, especially as you’re introducing
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the brand.
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So we pay a lot of attention in terms of when
we’re packaging it and when it’s going
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to hit the shelves and, you know, how long
it’s been in package before consumers get
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it.
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You know, there’s, for the most part, we’re
quite happy with the product that’s gotten
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out there.
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You know, we’re still getting through some,
you know, how do you improve that.
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But the fact is, you know, all these companies
are start-ups.
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You know, this is serious CPG business, you
know?
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It takes time to build these out, and that’s
where we’ve focused a lot, ensuring that
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product quality meets the consumer’s expectations.
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James West: Do you think that ultimately the
evolution of regulations will permit premium
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growers, and I’m not talking about the end
product, but growers who focus on such a devotion
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to the environment that the plant is grown
in, that mitigates or removes the requirement
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for radiation?
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Do you think that there’s ever a time where
we can skip the radiation process and sell
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fresh cannabis to people at its peak?
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Navdeep Dhaliwal: You know, I don’t try
to predict regulation or what governments
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do.
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James West: But there’s no conversation?
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Navdeep Dhaliwal: But I think in terms of,
you know, I think the government took a very
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risk-averse approach to it.
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I think, you know, with more and more education
– you know, everyone is still learning.
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The regulator’s learning, you know, there’s
a big initiative to legalize cannabis Federally;
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you know, so everyone’s learning, and I
think if there’s a, you know, if there’s
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a rationale or enough education to ensure
consumers are protected as well, maybe it’s
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different for different channels, you know,
possibly, but that’s not something like
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to predict.
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James West: Right, right.
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So you’re not aware of any dialogue at the
regulators’ level surrounding…
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Navdeep Dhaliwal: Oh, there’s lot of dialogue
going on; everyone has things, you know, initiatives
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that they want more discussion about, or more
dialogue, so there’s a lot of things going
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on.
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James West: Okay, great.
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And finally, let’s talk about your financials.
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359 increase over Q2 2018 in revenues; 50
percent increase from Q1 2019…like, that’s
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stellar double-digit Q on Q growth.
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Navdeep Dhaliwal: Yeah, we’re quite happy
with our most recent quarter, and I would
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say, you know, more so when you even look
at us on a comparable basis.
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I believe from a run rate perspective, we’re
eighth in the country, but out of that Top
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10 or Top 8, we’re by far the youngest.
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So I think a lot of investors or others in
the industry forget that we’re only licensed
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March 2016, so we’re definitely one of the
younger LPs.
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But I think that’s, our approach in the
beginning was, you know, quite simple: focus
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and build a competitive advantage in one thing,
because I think the cannabis opportunity,
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it’s so exciting, there’s a lot of things
going on; you can pretty much do everything.
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But, you know, that is somewhat dangerous
in a robust capital market environment, because,
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you know, over time, as things mature, you
know, certain business principles apply; meaning,
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you have to do something better than other
people in the market to last and build value
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and build on that advantage.
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So you know, we think it’s a testament to
the initial focus.
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We focused on being good cultivators at scale,
because we believe that’s the largest market
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in the world today and that’s the smoke
flower market.
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And you know, even if you look at the US data
that talks a lot about incremental or new
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products taking incremental market share,
if you look at aggregate flower sales, they’re
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growing quarter over quarter.
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You know, we actually think the market is
getting bigger.
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So when you look at, we believe it’s a testament
to that initial focus, you know, ensuring
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that we focus on scale; and you’re seeing
it now in our results, our production in terms
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of how fast we’re scaling, and even the
approach to scale was, I would say, different.
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We didn’t build out the greenhouse all at
once and fill it all up, you know.
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We did a very iterative approach in ensuring
that we were building IP and standardization.
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You know, we had a single room, we ran a crop,
did another one, ran a crop, did another one,
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standardized, ran in four crops.
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You know, really understand that environment,
and now we recreate that.
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So when, you know, our team walks into a room,
all of them are the same, you know?
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So we can scale them, and we believe that’s
why we’re getting that quality, and that’s
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what makes us different.
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James West: Okay, well, that’s great.
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We’re going to have to leave it there for
now because we’ve gone longer than I normally
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go on an interview, but it seems to be working
for you; the numbers tell the tale.
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I wish you the best of luck and thanks for
joining us today.
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Navdeep Dhaliwal: Thanks, James, great to
be here.
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