A cannabis executive behind a renowned Canadian licensed producer (LP) says premium cannabis will always have a place in the market.
As industry projections show legal markets have turned around the interest on dried flower product, Jesee McConell, CEO of Rubicon Organics (CSE:ROMJ), is making a bet on high-price products for cannabis connoisseurs.
During the Lift & Co. cannabis expo in Vancouver, the Investing News Network (INN) talked with McConell about the path for craft-focused companies and what investors will demand from companies in the marijuana space.
McConell describes a space just before the ultimate high-end product will exist in an open marijuana market, and that is where he sees his company competing. The executive is looking to target a concise growth plan where quality is above all else.
“What we’ve tried to do is focus on what I’m calling the ‘super premium’ segment, which is not the ‘ultra-premium’ segment – it is the affordable premium segment,” McConell told INN.
The executive wants to target a specific audience, which he dubbed the “volume consumer,” a person who according to him “sees cannabis as part of their fabric of their everyday life.”
As new legal cannabis markets open up, consumer trends are starting to show speedy transition from pure dried flower consumption to novelty items. John Kagia, chief knowledge officer at New Frontier Data told INN he has been surprised by how quickly consumers across all legal markets transition from flower to non-flower products.
“Today, 64 percent of consumers typically partake through rolled joints. While edible products won’t be available until a year after dried cannabis and oils make their legal debut, 58 percent of likely consumers plan to purchase and use edibles,” Deloitte wrote in its 2018 cannabis report about the Canadian market.
McConell combats the notion that dried flower products will become a fragmented part of the legalized business and explains consumers will be divided by the amount of attention they pay to the effects of the consumed product and its complexity.
This transition doesn’t decrease the demand of dried flower, according to Kagia, but instead shows new consumers move to purchase edibles or other infused items.
Rubicon Organics holds operations in the state of Washington and McConell told INN Rubicon Organics wants to develop a portfolio of successful brands from California.
The company reached the Canadian Securities Exchange (CSE) in October due to its assets operations in the US.
McConell is critical of the path the public marijuana sector has been through, saying valuations were being granted on the basis of production capacity rather than the quality of the product or the brands available.
Can you imagine being a brewery and saying, “Oh, I’ve got 100 acres of land, and I’m going to build a brewery on it, therefore, I’m worth more because I have more land.”
McConell doesn’t shy away from saying investors were uneducated on the intricacies of the industry. However, he does concede the space was in a very early stage and remains in a nascent growth state.
“They didn’t really care how much these business plans were going to be actually executed,” he said. “Now, when a company’s listing, you have investors who are peeling back the curtain and saying, ‘How are you going to deliver on this?’”
Strongly capitalized producers that have captivated the attention of investors from the beginning and created a commodified model of cannabis are those in the lead, McConell said.
And he expects the market to have already dictated the winners in that race. “The guys with the biggest balance sheets.”
Since its public launch in October 10, Rubicon Organics’ stock has taken a hit following a debut in which shares closed at a price of C$3.25; shares of the company have dropped 35.69 percent since then, for a closing price of C$2.09 on Tuesday (January 29).
Per the TMX Group, the company has a market capitalization of just over C$76 million as of Tuesday.
McConell was a co-founder for the Whistler Medical Marijuana Corporation, which was recently acquired by Aurora Cannabis (NYSE:ACB,TSX:ACB) for an all-share transaction of approximately C$175 million.
As per review standards from Health Canada in the Canada Act, all board members of an applicant must obtain foreign clearances. In an attempt to side-step the clearance, Rubicon Organics accepted the resignation of two of its board members in January.
The company informed shareholders it holds the right to bring back Bryan Disher and David Donnan into their board member roles, or at least nominate them as board members for shareholders to vote.
Disher served as a partner at PwC Canada for 33 years according to his personal LinkedIn account, while Donnan currently acts as a senior partner with A.T. Kearney, an international management consulting firm.
For now, both Disher and Donnan will serve as “senior advisors” to the marijuana firm.
Despite a widely projected swift market compression for marijuana ventures, especially those in the public markets, McConell said he doesn’t foresee as many business failures since he expects the markets to be forgiving.
“If you can produce a product right now, you can sell that product. So, there’s a period of time when that’s enough… But that is a short window and those people, they need to understand where they play in the sector and in a better way,” he said.
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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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