Vertically-Integrated and Scalable Cannabis Operations
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Heritage Cannabis Holdings Corp. (CSE:CANN;OTCMKT:HERTF) is focused on becoming a vertically-integrated cannabis provider. To fulfill this goal, Heritage has acquired two licensed producers in British Columbia and Ontario, Canada, respectively: PhyeinMed and CannaCure. The company is also in the process of acquiring Purefarma, a well-regarded hemp and cannabis extraction company.
PhyeinMed and CannaCure are expanding their operations to be able to meet the demands of the legal Canadian and global cannabis markets. Currently, Heritage has a combined coast-to-coast footprint of 153,000 square feet of cultivation space and has plans for a potential expansion to as large as 6.4 million square feet.
Purefarma has developed their proprietary know-how and intellectual property (IP) for their three key extraction methods and have contracted for 2018, 1,600 acres of farmland in Saskatchewan to grow hemp for extraction purposes. This contract scales to over 3,000 acres by 2021. Purefarma has also established relationships with 10 Canadian distribution partners and via the Licensed Producers owned by Heritage, is in discussions with several countries about forming distribution partnerships, providing the opportunity to establish an international presence.
As part of its vertical-integration model, Heritage has also secured the exclusive right to use Hollywood icon Cheech Marin’s cannabis brand, Cheech’s Private Stash, to sell products throughout Canada when Health Canada removes the restrictions on celebrity endorsements. It also allows the potential to distribute them globally. Heritage has also applied for retail locations in Alberta, and will apply in British Columbia and Ontario.
Heritage’s management team is bolstered by the experience and expertise of its Chief Science Officer Dr. Chris Spooner. He brings over 20 years of experience owning and operating integrative care clinics and has sat on the advisory board for Atrium Innovations, a division of Nestlé Health Sciences.
- Vertically-integrated cannabis company with Canadian coast-to-coast cultivation footprint of 153,000 square feet.
- Potential to increase cultivation footprint to 6.4 million square feet.
- Acquisition of Purefarma will bring proprietary extraction know-how and IP from operators who have thousands of hours of experience, successfully producing high quality product.
- International expansion opportunities through Purefarma.
- Exclusive right to sell Cheech’s Private Stash cannabis and cannabis-related products throughout Canada and Internationally.
- Applications pending for retail locations in Alberta, future applications will be made in British Columbia and Ontario.
- Spooner brings over 20 years of experience, expertise and potential formulations in the Natural Health Product sector.
The Canadian Cannabis Market
According to a report released by New Frontier Data, the Canadian cannabis market is projected to spend $7.17 billion on cannabis products in 2019. The growth of the market is being fueled in part by the demand for cannabis extracts as they provide an alternative to smoking and opioids as a way to manage pain relief and to treat other ailments.
A Vertically-Integrated Model
Heritage is working towards establishing a vertically-integrated presence in Canada. In order to do this, the company has two licensed producers, a prominent cannabis brand, and is also in the process of acquiring a cannabis extraction company. Each of these entities offers Heritage multiple market access points, product differentiation, control of their supply chain and competitive cost scalability.
Moving forward, the company will be targeting retail and distribution channels within Canada to sell their uniquely branded products. Heritage also intends to penetrate the global cannabis markets with wholesale products, and their branded offerings as well.
In September 2018, Heritage entered into a binding LOI to acquire Purefarma Solutions Inc., a manufacturer and wholesale processor of premium extracted products based in Kelowna, British Columbia. Purefarma has been in operation since 2016 and has the potential to be a significant provider of high-quality CBD and THC oils to the Canadian cannabis market through Heritage’s Licensed Producers. Purefarma has also been a Cannabis Cup winner for vapes, concentrates and sativa for three years running.
During this time they have developed their proprietary know-how and IP regarding their three key extraction methods: CO2, hydrocarbon and alcohol. Additionally, the company has over 65 catalogued strains in their database and are actively adding new strains.
Purefarma has contracted 1,600 acres of farmland in Saskatchewan for three years to grow hemp for their extraction processes. The supply commitment grows to 3,000 acres by the third year. The company is actively involved in ensuring that the hemp they process is of a high quality. The company is focused on using hemp as it contains less than 0.3 percent THC, making it efficient to extract CBD, a main component in extract products. Purefarma will also be able to utilize the cannabis produced by PhyeinMed and CannaCure or other third-party products, if needed.
In addition to their IP and growing strain catalogue, Purefarma has established relationships with distribution partners with retail channels, through compound pharmacies and resellers, throughout Canada. The company is also in discussions with several countries to create an extraction platform and supply chain. It will look to take advantage of these through the new LP structures.
On November 5, 2018, Heritage completed its acquisition of CannaCure Corporation, a licensed producer with a 122,000-square-foot former GMP facility in Fort Erie, Ontario. CannaCure has completed a Phase one 24,260-square-foot build out at their facility.
Heritage will continue to build out the facility as the company expands their extraction business and to ensure that they are able to meet the demands of the consumables market once it is approved by Health Canada. Phase 2 construction will include a 37,258-square-foot center with extraction equipment, expanded grow rooms and edible production capabilities.
Phase 3 will include the building out of 44,169-square-feet of processing and distribution space. Heritage is in discussions with established brands and cannabis companies that will require products and the space to ship their products across Canada and the globe, and this space will be transformed to meet these requirements.
Additionally, CannaCure has the option to secure an operational 3.4 million-square-foot greenhouse in Leamington, Ontario. Currently, the greenhouse is producing approximately $30 million in revenue in the produce market.
Heritage owns a 75 percent interest in PhyeinMed, a licensed producer operating in Falkland, British Columbia. PhyeinMed owns 13 acres of land and has a fully-constructed 15,500-square-foot production facility. Currently, four greenhouses are under construction with an additional 8 – 16 greenhouses planned to be built within the next year. Once complete, there will be a total of between 50,000 and 82,000 square feet of growing space on the property.
Additionally, Heritage has acquired an additional 100 acres of farmland near Clearwater, Ontario, which gives PhyeinMed the potential to culminate a growing capacity of 3 million square feet.
PhyeinMed has also signed a wholesale agreement with Canopy Growth Corporation (TSX:WEED;NYSE:CGC), a world-leading diversified cannabis and hemp company, offering distinct brands and curated cannabis varieties in dried, oil and softgel capsule forms. PhyeinMed will supply cannabis and cannabis products for the recreational and medical marketplace through Canopy’s various sales channels and through TweedMainsStreet.com for a period of three years.
As part of their vertically-integrated model, Heritage will be establishing their own retail presence throughout Canada and the globe. The company has applied for brandable retail locations in Alberta, and will apply in Ontario and British Columbia when available.
In April 2018, Heritage signed an agreement with GLE Brands Inc., a branding company representing the Cheech’s Private Stash, iconic Hollywood actor and stand-up comedian Cheech Marin’s cannabis brand. For an initial two-year period, Heritage will have the exclusive right to use Cheech’s Private Stash cannabis and cannabis-related products throughout Canada. Heritage also retains the right to export Cheech’s Private Stash branded products to other countries once the appropriate licenses are obtained.
“We are very excited to have such an iconic name joining our team” said Heritage President and Chairman Clint Sharples. “Cheech’s celebrity, personal brand and name recognition is synonymous with quality cannabis and we have high hopes for launching these products in Canada.”
Clint Sharples — President, Chairman and Director
Clint Sharples is a partner in First Growth Management (FGM), a small private equity management company formed in 2005. His primary roles for FGM include President and CEO of Modu-Loc Fence Rentals since 2009 (his role is to lead the overall corporate development and implementation of the strategic direction). In addition, Sharples is the Chairman of other companies in which FGM has invested, including Strategic Aviation Services Ltd., Sky Café Ltd., US Pressure Test Inc. and US Casing Services Inc.
His executive career began in 1995 when he was made Executive Vice President of Superior Management Group, a national wood pallet company, and was instrumental in its growth, until its sale in 1998 to IFCO Systems. He became President of IFCO Canada in 2002 and led a management buyout in 2005, creating Paramount Pallet Inc. Clint served as CEO of Paramount until its sale in 2011.
Dr. Chris Spooner — Chief Science Officer
Dr. Chris Spooner is a North Okanagan naturopathic doctor with extensive academic, clinical and business development experience. With over 20 years of experience owning and operating integrative care clinics, Dr. Spooner brings a targeted skill set that encompasses nutraceutical development, patient care protocols and clinic development. He is a member of numerous medical advisory boards, including of Atrium Innovations, a division of Nestlé Health Sciences, Translational Life Sciences and Kisameet Glacial Clay. In addition to this, Dr. Spooner has over a decade of experience on the board of directors of the College of Naturopathic Physicians of British Columbia.
Debra Senger – Chief Strategy Officer
Ms. Senger has led PhyeinMed for over four years and has been involved with public companies for over twenty years on the board, and in various officer positions. She brings with her a deep knowledge and years of experience in the Cannabis industry, and plays a key role in the strategic direction of Heritage.
Michael Tkautz – VP Business Development
Mr. Tkautz is a seasoned entrepreneur, building and assisting start-up businesses in the manufacturing, renewable and biotechnology industries by developing their brands into international markets through strategic partnerships. Most recently, he assisted with product, brand and regulatory development of the world’s first renewable hydrocarbon ingredients used in cosmetic, personal care and automotive lubricants.
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