Coming Wave of Edibles and Vape Sales has Canadian Cannabis Companies Prepping for Legalization 2.0

NEW YORK, June 25, 2019 /PRNewswire/ -- The date has been set for the rollout of new cannabis products in Canada, such as vape pens, edibles, beverages, topicals, and extracts. Regulations for this second wave of legalization, dubbed "Cannabis 2.0", go into effect on October 17th, with products hitting shelves about two months later. Companies are well-positioned for this new growth opportunity are emerging, such as Organigram Holdings Inc. (NASDAQ:OGI) (TSX.V:OGI), Namaste Technologies (TSX.V:N) (OTCQB:NXTTF), The Supreme Cannabis Company (TSX:FIRE) (OTCQX:SPRWF), The Green Organic Dutchman (TSX:TGOD) (OTCQX:TGODF) and HEXO Corp. (NYSE:HEXO) (TSX:HEXO).

Industry analysts are already predicting Canadians will experience a tight supply upon mid-December's legal market inauguration. However, a select few companies, particularly Organigram Holdings Inc. (NASDAQ:OGI) (TSX.V:OGI), have been announcing their strategy and preparations for Cannabis 2.0's advent.

Having already partnered with The Green Solution, Canada's Smartest Kitchen, and Valens GroWorks, Organigram has positioned itself well for the largest product form segments of the Cannabis 2.0 market. Most recently, the company announced they have been selected as one of only four Canadian partners of PAX Era, the premium oil vaporizer created by leading vape heavyweight PAX Labs Inc. Organigram is getting ahead on a vaporizer market that's widely expected to emerge as the most popular format in the Cannabis 2.0 market based on US sales data.

Vaping Extra Value

Joining Organigram in partnering with PAX (founders of Juul, the most popular vape pen in the U.S.), are three other companies, including The Supreme Cannabis Company. Not to be left out on the vape market's potential, The Green Organic Dutchman has signed a partnership deal with the parent company of vape pen manufacturers Evolab, likely to set up TGOD supplies for vape consumption.

Ray Gracewood, senior vice-president for marketing at Organigram Holdings Inc. (OGI), told BNN Bloomberg his company is earmarking approximately one-quarter of its cannabis for the concentrate market ahead of the demand it hopes to see for vape products.

"We think the vaporizer market will be the second-biggest market next to dried flower in the short term and the biggest driver to get new consumers in the space," said Gracewood, adding that his company also plans to produce cartridges and disposable devices for the Canadian market.

Organigram, through its Edison Cannabis Co. brand, was also selected as the exclusive Canadian supplier of Feather Company Ltd.'s industrial design-patented vaporizer hardware and technology. This gives the company two bona fide options to gain traction in the vape segment.

Incoming Edibles Options

Plenty of experts are projecting that once the new cannabis licensing rules launch new products in December, Canada's cannabis supply shortage could get even worse.

New edible (and drinkable) products are expected to be coming down the line in December. While details on their intentions aren't fully available, The Green Organic Dutchman is set to deliver potentially several new edible products. The company secured an exclusive license with fast-acting Stillwater Foods' RIPPLE SC (Soluble Cannabinoids) ingredient technology, to easily infuse cannabinoids into beverage and food products.

HEXO Corp. will be leaning on the beverage expertise of Joint Venture partners, Molson Coors Brewing Co. Together the partnership is expected to have a variety of (non-alcoholic) drinkable products ready in time for a national rollout in December.

For Namaste Technologies the plan is to deliver a line of chocolates through a partnership with Calgary-based chocolatiers, Chokolat. Organigram Holdings Inc. (OGI) is also looking to the chocolate option, through a C$15 million investment commitment in a high-speed, high-capacity, fully-automated production line with the ability to produce an estimate of up to 4 million kilograms of chocolate cannabis edibles per year.

With all of these new products and more on deck, Licensed Producers (LPs) will be charged with the task of meeting significantly higher and more complex supply expectations once Cannabis 2.0 officially hits. This is where dependence on major growers such as New Brunswick-based, Organigram could possibly ramp up. Construction of their Phase 4 expansion is expected to be completed by the end of 2019 for target production capacity of 113,000 kilograms per year, once fully licensed and operational^[1].

Cultivation efficiency is shaping up to be one of Organigram's biggest strengths. Its per-gram cash cost is the lowest reported by Canadian LPs, at C$0.65/gram, with an equally impressive all-in cost of C$0.85/gram of dried flower harvested^[2].

A true national player in Canada's legal adult use recreational cannabis marketplace, Organigram is now distributing products for sale in all ten Canadian provinces. The company recently announced the first shipment of its cannabis products to the province of Quebec, following purchase orders placed with the Société québécoise du cannabis (SQDC) and registration with the Autorité des Marchés Publics.

The market may need major cultivation boosts from suppliers like Organigram Holdings Inc. (OGI), a company with a strong track record of meeting supply commitments, to keep up with the additional demand that's likely set to come.

Plenty of Innovation on the Way

Primarily focused on the e-commerce side of the medical marijuana business, Namaste Technologies (TSX-V:N) (OTCQB:NXTTF), is gearing up for new cannabis edibles customers with a sweet tooth. Earlier in March, the company acquired a 49% stake in Calgary-based chocolate company, Choklat. For a payout of C$1.5 million, Namaste now has access to Choklat's online distribution platform where it will soon add a line of cannabis-infused edibles, likely later this year when they become officially legal to sell in December.

On the beverage side of the industry, HEXO Corp. (NYSE:HEXO) (TSX:HEXO) partnered with Canadian brewing giant, Molson Coors Brewing Co. for a joint venture to begin selling multiple types of pot beverages on Canadian shelves before the end of the year. The JV insists that none of these products will contain alcohol, however, Molson Coors' reach and distribution capabilities, coupled with HEXO's growing capacity should make an impact once launched.

Not to be left out of the edibles market, The Green Organic Dutchman (TSX:TGOD) (OTCQX:TGODF) established its supply chain for new edible products in time, ahead of December. Through a definitive long-term extraction supply agreement with Neptune Wellness Solutions signed in March, 'TGOD' will supply more than 230,000 kgs of cannabis and hemp biomass over a three-year period. The deal is believed to signal TGOD's anticipation of launching a line of cannabis edibles and alternative products later this year.

TGOD has also positioned itself for the unfettering of the popular cannabis vape market. Back in May, the company announced an exclusive agreement with CBx Enterprises LLC for the licensing of the Evolab and CBx Sciences brands. CBx Sciences likely is more in line with developing products for the edibles market, whereas Evolab is a top cannabinoid vaporization brand that's gained a significant market share through its variety of products.

Joining in on the vape movement, both The Supreme Cannabis Company (TSX:FIRE) (OTCQX:SPRWF) and Organigram Holdings Inc. (OGI) have secured agreements with US vape pen company, PAX Labs Inc. Through their respective 7ACRES and Edison Cannabis Co brands, Supreme Cannabis and Organigram are two of the only four Canadian suppliers of cannabis oil pods for the strong brand Pax Era, which sells as many as 1.5 million units of products globally per year.

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^[1] Certain factors may cause actual capacity to differ. See company's Q2 MD&A.
^[2] Cash cost and all-in cost of cultivation is a non-IFRS measure. See company's Q2 MD&A.

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