“60-70% of Canadian cannabis sales in 2021 was generated in two provinces, Ontario and Quebec, for a total of $840M CAD. The data shows that Quebec has 80-90 outlets compared to Ontario with 1,400-1,500 stores. That works out to 1 retail store per 100,000 person capita, whereas Ontario is 1 per 1,000 capita. There is a true opportunity in Quebec.”
With a population of over 8 million adults, Quebec is good for business. But when the business is cannabis, you might have to think again. Market Watch reported late last year a three month steady decline in the value of cannabis stocks (about 25%) measured by sector ETFs. CIBC analyst John Zamparo attributes this to be as a result of perpetual losses and the lack of investors who have pulled out upon realization that federal legalization in the U.S might not be happening any time soon. In brief, there has been significant turbulence in the Canadian cannabis market since its high point in 2018 giving an indication that profitability in the industry is a mere pipe dream.
While it may seem okay for any investor to be shaking in their boots and wanting to pull out, Nick Sosiak holds a different opinion. After doing his math he believes that the “Old Capital” province is bursting at the seams with untapped opportunity.
Nick Sosiak is a Chartered Professional Accountant and serves as the Chief Financial Officer of Cannara. In this capacity, he oversees the company’s finances and treasury takes part on decision making. Cannara Biotech is a vertically-integrated producer of premium-grade cannabis and derivative products in Quebec. The company has managed to maintain a positive EBIDTA in the last three quarters.
In this brief interview he takes us through his journey as CFO for Cannara Biotech as he shares insights into the critical success factors that any cannabis entrepreneur should fully grasp. For Cannara Biotech, Disruptive pricing has played a key role in building customer trust and loyalty over time. Let’s hear more from Nick himself.
Without further ado, meet Nick Sosiak.
As an intro, how did your career path lead you to the legal cannabis industry?
I’ve always had a genuine passion and love for the cannabis industry. However, I started my career path as a Chartered Professional Accountant (CPA) and worked in the audit industry for a while. I then joined a client of mine in the real estate industry and took care of the capital management of large-scale real estate development projects. As I saw legalization of Cannabis occur in Canada, I knew I had to switch industries. In April 2019, I joined Cannara to take on a leadership role and have been truly involved in all parts of the Company since. I believe my past roles have equipped me to take on the CFO role here at Cannara.
Cannara has invested heavily in the Quebec market. Can you share some comments on how this market has evolved since November 2018?
Cannara saw a competitive advantage in the Quebec market and quickly took the necessary steps to heavily invest in the space and bring quality products to the province. We came in strong and aggressively with low price points and high-value propositions. Quebec is behind other cannabis markets in Canada because product pricing was high but lacking in quality. When we entered the market we started a pricing war, forcing competitors to lower their prices to hold their place in the market. Based on feedback from consumers, we’ve been told we had the best launch in Quebec.
60-70% of Canadian cannabis sales in 2021 was generated in two provinces, Ontario and Quebec, for a total of $840M CAD. The data shows that Quebec has 80-90 outlets compared to Ontario with 1,400-1,500 stores. That works out to 1 retail store per 100,000 person capita, whereas Ontario is 1 per 1,000 capita. There is a true opportunity in Quebec.
Due to the restrictive cannabis laws in Quebec, we have had a slower approach with concentrates but we have worked hard to formulate our hash products under our Nugz brands to respect the restrictive cannabis laws here in Quebec (less than 30% THC) yet be of premium quality and price competitively.
Previously you have talked about “the second wave of Canadian LPs.” Can you tell us more about this and why it is important?
The first wave of Canadian LPs received a lot of financing easily with hopes and dreams that weren’t fully developed, and certainly weren't executed. This snowball effect of companies receiving large sums of funding and not having the expertise or resources to execute on them caused many facilities and operations to fail.
Two years after legalization, the second wave of Licensed Producers hit. New entrants came in with significantly reduced financing and were forced to execute since they didn’t have the cash war chest. Throughout Cannara’s lifetime, we’ve received $80-100M CAD and allocated that money towards plans to reshape the Canadian cannabis industry, to allow us to own our cultivation, build out our brand assets and control the complete vertical. Second wave producers observed and learned from the first wave and had plans to execute and were ultimately able to do so by grabbing the market share from the first wave LPs. Many of the first wave companies lost consumer respect and brand loyalty.
What’s the place of craft cannabis in the Canadian market?
First, we need to define what craft is. If craft is defined as quality, then I believe craft cannabis has a huge opportunity as consumer buying behaviors have shown that they do want premium quality cannabis that is priced reasonably. Here at Cannara, we have proven that craft can be made at scale. However, if craft is defined as small batch producers, I believe that there is still a niche market to be served and catered to, but they will have to go beyond quality cannabis in order to be successful.
How can a new business navigate through the stringent cannabis marketing restrictions in Canada?
The Canadian cannabis marketing landscape has a lot of rules, regulations and restrictions that make navigating the process challenging as there are many gray zones. My advice to companies is to have the right marketing and legal counsel from the beginning to assist and guide the marketing and production assets, ensuring they’re as closely aligned to the law as possible. Many companies are not aware of any wrongdoing until they are faced with repercussions after getting inspected. Companies should be aware of this huge risk, they can potentially millions in production and packaging if the job is not done properly.
You are the CFO of Cannara so we can’t wrap this up without talking about financials. Recently, Cannara released the first quarter financials for 2022. It seems that Cannara has managed to maintain a positive adjusted EBIDTA over the last three quarters, depicting positive financial growth. What is the company doing right?
Our focus on cultivation and growing our production output steadily has resulted in positive EBITDA over the last three quarters. The current financials that are released are showing the business that we currently operate at the Farnham facility, which is our first 625,000 sq ft facility where 170,000 sq ft is dedicated to cultivation and production, and the rest of the space is leased out. In June 2021 we acquired the Green Organic Dutchman’s Valleyfield facility that is a 1M sq ft hybrid greenhouse. The main building is 600,000 square feet and consists of 24 rooms with each room spanning 25,000 sq ft. November 2021 marked our first planting of 9,600 plants in our first zone in the Valleyfield location. As of today, we currently have in operation four 25,000 sq ft zones with plans on activating six by August 2022.
With every zone and a half that we activate, we double our growth that we were able to produce at our Farnham location. We will continue to open up our zones in lock step to ensure quality and consistency of production and opening our distribution network to get the product sold under our brands, Tribal, Nugz and Orchid CBD.
What’s next for Cannara? Are you looking to explore other markets in the near future?
In the next 1-2 years, we look forward to expanding organically with the Valley-field facility while opening distribution markets in other Canadian provinces. We know that the demand for our products is strong, so our goal is to make it available in other provinces.
Once we have accomplished and conquered Canada, I believe Cannara will be primed for success to enter other markets such as the US as we near potential federal legalization.
It was a great pleasure to have this one-on-one with Nick Sosiak from Cannara. Readers who wish to keep up with how Cannara is transforming the industry are welcome to visit Cannara Biotech.