Interview with Keith Merker, CEO, WeedMD – www.weedmd.com
On October 23, 2018, Keith Merker, CEO of WeedMD, spoke at Kahner Global's Cannabis Private Investment Summit in Toronto, Ontario. The event hosted more than 100 industry leaders and investors for a day of collaboration and networking.
Here, Merker provides some insight on what investors can expect in the year ahead and how WeedMD is positioning itself as a top 10 producer in Canada.
1) What is on the horizon for WeedMD in the year ahead?
We’re moving into a pivotal year with a major production ramp up that will influence the strategic opportunities we expect to capture in 2019. For starters, our state-of-the-art production facility in Southwestern Ontario is expected to progressively come on-line by first quarter 2019. Based on our production footprint, WeedMD is slated to become one of the top 10 producers in Canada – based on production output.
Additionally, we recently announced that we've partnered with a leading Quebec product formulation laboratory to spearhead our cannabis product development and appointed a Chief Innovation Officer, Dr. Domenico Fuoco, to lead the team. We've laid out an ambitious plan to branch out into health and wellness, cosmetics and nutraceuticals with Smart Medicines GMP Inc.
This will bring expanded revenue opportunities as we scale for growth to meet the demand of B2B markets, medical and recreational-use cannabis markets, as well as expand our product innovation and distribution channels on national and international levels.
2) What are the opportunities you see within Canada?
In Canada, long-term success will come to those that look to expand their portfolio of cannabis products and keep aligned with supply demand. We’ve positioned ourselves accordingly with product innovations, the ability to branch out into the nascent cannabis markets and scale production as required. These will be key areas of growth for WeedMD.
We’re eyeing the health and wellness markets where products such as CBD-infused-beverages, cosmetics/creams, nutraceuticals etc. are expected to be in demand, once our government approves.
3) What are the cross-border opportunities you see with the U.S. and elsewhere?
We are eyeing potential endeavors on almost every continent including across the border with some potential U.S.-based partners. More to come on that soon. Additionally, we recently exported our cannabis seeds abroad to Australia, and many other countries are now interested in following. Needless to say, our business development team is busy.
4) What most excites you about the future of the industry?
It’s the pioneering spirit under which this industry started. Rooted in a belief system that cannabis is a medicine with so many possibilities - it’s that mixture of science and entrepreneurship that is exciting. So many possibilities to expand into new markets, and we are just starting to explore this as an industry.
5) Will this market consolidate? The valuations — are they real?
We are seeing a few anomalies considering where most of Canada’s licensed producers are sitting. There are about 120 LPs however it’s only a matter of time before we see the authentic players rise to the top. We do believe consolidation will happen. Now that Canada has legalized, you will see big players from outside the cannabis industry start to take a bigger interest and therefore accelerate more consolidation. At the end of the day, the cannabis itself is the foundation of this industry, and those who can grow quality cannabis, avoid crop failures and innovate with new products will stand out as valuable players in this industry.
6) Are there any lessons learned you would share with investors, or with startups, looking to invest or enter the industry?
This industry is still in its infancy stage, and we are learning something new every day. Going forward, real fundamentals and quarterly earnings will start to matter. I would encourage investors to look at a company’s management team, earnings (level of revenue and growth rate), funding on hand, production capabilities and international opportunities. I would also look at companies who are innovating and creating cannabis derivative products. Those who can move fast will have first mover advantage.
7) What are the most significant challenges ahead?
While cannabis cultivation has been around for centuries, we don’t have enough clinical testing and trials to learn from. Our information is mostly anecdotal. It’s a challenge and an opportunity to partner with universities and research institutes to change all this. We’re looking at funding research projects to learn more – having partnered with the Technion Institute in Israel as well as Smart Medicines GMP Inc., leader of a research hub in Montreal, we’re taking the initiative. As well, up to now, Cannabis had the classification of a narcotic and that’s still the case in many other countries and that must change. Changing perceptions and removing the stigma will always be a challenge.
8) Will the economy and any potential recessionary pressure in Canada, US or elsewhere affect your business and/or your customer demand?
We don’t believe so. We’ve established innovative partnerships and diverse product lines that are geared to seniors, women and the wellness market. As well, WeedMD has secured commercial agreements to supply cannabis to four provinces; an agreement with Shoppers Drug Mart which is Canada’s leading pharmacy chain; and supply contracts with over 30 long term care homes and retirement communities.
9) Can you discuss your views around the pricing of product / services and how that might flex with illegal markets, taxes, product margin compression?
While Illicit markets have an inherent advantage in competitive pricing as they don't incur the costs of compliance or taxes, legal markets will trump the illicit in quality product and quality-control standards, providing consumers with known terpene and cannabinoid profiles.
Long-term, expect the illicit market to fade away as growers and distributors find it challenging to compete with legal channels and/or consumers that switch from purchasing unknown product to known product in the legal market. Colorado took roughly three years after legalizing to get to only 25% of demand being serviced by the illicit market.
Also, long-term we expect there will be product margin compression - this will come twofold: 1) legal players competing against other legal players; and 2) legal players trying to push out the illicit market.
10) Regarding the role of cannabis in healthcare — do you have any strategy around that, for example, how the industry could help serve low income healthcare needs?
WeedMD started out primarily as a medical cannabis company, and our commitment to the medical patient will always be at the core of everything we do. We have medical doctors, nurses and PhDs on staff because we truly believe in the science behind the cannabis plant. We have teams that are regularly invited to visit long-term care and retirement communities to educate patients about using cannabis as alternatives to their medications.
Attitudes towards cannabis are changing, and traditional cannabis consumption methods are changing especially now that many are seeing the health benefits of moving off debilitating medications and over to the natural alternative that is cannabis. As for pricing relief, we do offer our eligible medical patients compassionate pricing, and all patients get free shipping as well excise tax relief on their medicine. We don’t believe that medicine should be taxed and we’re doing what we can to assist our patients.
11) Cannabis medicine is about patients self-medicating, and that’s in conflict with the traditional paternalistic approach. Where do you and WeedMD see the right balance between these?
With respect to the medical patient, it’s up to the individual and his/her healthcare practitioner to moderate. As noted, we do have medical practitioners on staff that can answer questions, and most recently, we’ve opened an Education Centre in downtown Toronto where people can drop in to speak to our knowledgeable staff. Topics such as understanding dosing, strain selection, terpene profiles and general cannabis 101 subjects are covered.
12) What does the total addressable market look like?
In Canada, you're looking at a $7-10 billion market at the retail level for medical and adult-use. Globally, we’ve seen numbers between $180 billion-$500 billion. Either way, it's a ridiculously large addressable market globally. In any event, long-term opportunities come from: illicit purchases transitioning to legal; new consumers; cannibalization of alcohol; as well as cannibalization of natural health products and pharmaceuticals on the national and international levels. The bottom line: we’re in an exciting industry with tremendous growth opportunities!
About WeedMD Inc.
WeedMD Inc. is the publicly-traded parent company of WeedMD Rx Inc., a federally-licensed producer and distributor of medical cannabis and oils under the Access to Cannabis for Medical Purposes Regulations (ACMPR). The Company operates a 26,000 sq. ft. indoor facility in Aylmer, Ontario, and a second cultivation site at its greenhouse facility located in Strathroy, Ontario, representing 610,000 sq. ft. or 14 acres under glass. WeedMD has entered into supply agreements in addition to strategic relationships with established cannabis brands. WeedMD is focused on providing medical cannabis to the seniors' markets in Canada through its proprietary seniors care program. It is dedicated to educating healthcare practitioners and furthering public understanding of the role that medical cannabis plays – including as it pertains to regulatory requirements, indications and potential side effects.
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