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Supreme Pharmaceuticals Inc (TSXV:FIRE) is a licensed producer uniquely implementing B2B cannabis sales within Canada. Based in Ontario, the company is headed in Toronto and their sole asset, 7ACRES, is situated in Kincardine, on the southern shores of Lake Huron. Supreme Pharmaceuticals’ mission is to lead the cannabis industry, innovate and keep pushing cannabis forward while remaining focused on the quality of the product.
The first to adopt a licensed B2B wholesale model in Canada, Supreme Pharmaceuticals’ approach is based on producing high-quality cannabis that can be sold at a commercial scale to licensed producers, value-add manufacturers, storefronts and more. The goal of this approach is to allow for specialization across the industry, allowing partners to develop and succeed while they are supplied with quality cannabis.
To this effect, once they obtained their license to sell from their 7ACRES property in June 2017, Supreme Pharmaceutical entered into sale partnerships in September with two licensed producers, Aurora Cannabis (TSXV:ACB) and Emerald Health Botanicals, a subsidiary of Emerald Health Therapeutics (TSXV:EMH).
The 7ACRES property is on its way to becoming the country’s leading producer of high-quality commercial cannabis at a scale that has not yet been seen. Currently cultivating on 16,500 square feet, Supreme expects to have the entire 342,000-square-foot hybrid greenhouse facility running at full capacity by 2019 with a projected 50,000 kilograms of cannabis produced per year and $200 million to $400 million in revenue per year.
Supreme’s management team is one with vast amounts of experience in the cannabis and financial sectors. The team is headed by John Fowler, a lawyer that has been an advocate for the cannabis industry and thus has deep knowledge of both the medicinal and recreational spaces.
- Innovative wholesale business model for bulk cannabis sales to strategic partners
- Low operational costs to produce high-quality product
- License to sell received in June 2017
- Partnerships for cannabis sales with Aurora Cannabis and Emerald Health Botanicals
- First reported quarter of sales to be reported by end of 2017
- Well-funded with over $70 million raised collectively in 2016 and 2017
- 2016 private placement of $55 million from a syndicate of four banks led by Canaccord Genuity Corp
- 7ACRES property with 342,000 square-foot hybrid greenhouse facility
- Expecting to run at full capacity in 2019 producing 50,000 kg per annum
- Strong management team with notable experience in the cannabis space
Canadian cannabis market
Following the introduction of the Cannabis Act in 2017, the Government of Canada is looking at July 1, 2018 as the launch date for the legalized and regulated recreational cannabis market. This makes the country the first in the G7 to legalize recreational marijuana as well as the only one to boast wholly-legal licensed cannabis production. As of September 2017, there are 52 licensed producers in Canada under the ACMPR (Access to Cannabis for Medical Purposes Regulations), which is creating globally recognized benchmarks for cannabis producers.
With legalization on the way, there are further opportunities for cannabis producers to grow in the form of a regulated recreational cannabis market segment.
Wholesale Business Model: Quality Cannabis for Bulk Sales
Introducing a wholesale model
Supreme’s business model is one that is centered on the production of high-quality cannabis at a commercial scale. As such, it has adopted a wholesale model in which it cultivates premium product that is then sold in bulk to resellers such as other licensed producers, value-add manufacturers and others.
While wholesale prices for cannabis may be lower than those for patient sales, implementing this model sidesteps the effort required to attract patients, the cost of infrastructure needed for patient sales and any costs associated with marketing and packaging the product. As such, there is a reliable profit margin that is sustained as Supreme grows as the sole B2B producer in the Canadian cannabis market.
“Our team works tirelessly to achieve our goal of producing craft quality cannabis at scale,” said Supreme CEO John Fowler. “Focusing on cultivation allows us to develop proprietary value by developing the infrastructure, management systems and expertise needed to scale cultivation in a regulated industry.”
As the Canadian government has yet to outline which cannabis products will be legally distributable under the upcoming regulations, Supreme’s business model ensures its continuity by focusing solely on the production of high-quality cannabis that will be capable of supplying the market regardless of restrictions.
In April 2016, Supreme announced a strategic partnership with Dinafem, a cannabis seed developer based in Spain that has a large-scale phenotyping project. With 15 years of experience in the field, the company has granted Supreme access to cannabis genetics as well as exclusive rights to consultation regarding the selection of phenotypes for the production of high-quality products.
Following the announcement of their TSXV listing and the approval for sales from their 7ACRES subsidiary in June 2017, Supreme went on to procure partnerships for bulk sales with two other licensed producers that manage the packaging, marketing and sale of cannabis products. The first of these, announced in early September 2017, was an agreement for multiple sales over the course of the month with Aurora Cannabis, a company supplying 19,000 patients with quality cannabis.
“We chose Aurora as our primary retail partner due to Aurora’s strong brand and commitment to quality,” said Fowler. “The 7ACRES producer’s mark aligns with the Aurora Certified Program, which provides patients a transparent curated experience. We look forward to developing a long term relationship with Aurora and consider this just the first step.”
The second partnership is with Emerald Health Botanicals, a subsidiary of Emerald Health Technologies that focuses on advancing the science of medical cannabis through a strong commitment to research.
The agreements with both partners stipulated that all packaged products will be co-branded, with ‘SunGrown by 7ACRES’ printed on the packaging.
As they navigate their role as a licensed producer and make relationships within the Canadian market, Supreme is exploring international opportunities as other countries look toward legalization and regulation.
7ACRES is Supreme’s wholly-owned subsidiary that was purchased soon after the company’s inception in 2014 and was opened for production in March 2016. Following a long licensing process, the subsidiary was given its permit to conduct cannabis sales in June of 2017.
The production facility boasts 342,000 square feet on a 16-acre property. Located in the Bruce Energy Center, in Kincardine, Ontario, the facility is supplied with significant amounts of power for the controlled environments of their facility. A hybrid-greenhouse structure, it makes use of HVAC and CO2 enrichment practices as well climate control techniques while also enhancing their cannabis buds with sun-grown characteristics. This hybrid approach positively impacts the quality and the yield of the crop. Supreme’s hybrid greenhouse is considered to be a best-in-class facility that indicates the company’s passion for developing a quality product.
Supreme is currently cultivating on 16,500 square feet of the property while they work on retrofitting the rest of the facility. Between the end of 2017 and 2019, the company will be increasing their square footage until they can run at full capacity, using all 342,000 square feet for production. At full capacity, Supreme expects to be producing 50,000 kilograms a year at an expected revenue of $200 million to $400 million per year.
John Fowler—CEO and Director
Navdeep Dhaliwal—President and Director
Michael LaBrier—Chairman and Director
Dimitre Naoumov, CPA, CA—Chief Financial Officer
Omer Azeez—VP Marketing and Regulatory Affairs
Ram Davloor—Chief Compliance Officer