Q&A with WeedMD

Published on September 12, 2019 by oz. staff

Known in the rec market as Color Cannabis, WeedMD has earned a reputation for delivering amazing weed at a decent price for Canadian cannabis lovers.

The company’s CEO, Keith Merker, did a Q&A with Reddit’s WeedStocks community Thursday night. The cannabis investing community had some great questions for him, and Merker delivered on answers.

A little background on the Ontario company. They’re expecting their first outdoor harvest at the Strathroy, Ont., farm. The company is also expanding its indoor capacity, securing Health Canada’s approval for 10 additional 10,000-square-foot cultivation rooms, which are all currently being populated with cannabis plants.

In preparation for Cannabis 2.0, they’ve launched CX Industries, an extraction hub in Aylmer, Ont.

Their products, including Mango Haze and Pedro’s Sweet Sativa, have been available in BC.

Q: What’s your personal favourite WeedMD strain?

A: I have to admit, walking into one of our 10,000 sq. ft. flowering rooms in the greenhouse filled with 3,500 mature Pedro’s Wine Gums (Sweet Sativa), is an experience to remember. The intensity of the sweet and sugary terpenes just blow your mind.

Q: Any new strains on the horizon? Does WeedMD have any exciting genetics that’s not deployed? Anything on par with Pedro’s Sweet Sativa?

A: We have plenty of strains growing outdoors that we look forward to bringing to market. This includes some WeedMD classics such as Ultra Sour and Babba’s Erkle Cookies as well as some new ones. You will see them get to market starting in late 2019 and into 2020.

Q: What do you think is the most important change the governments need to make to help foster a better cannabis economy?

I think that the most important thing is to deconstruct the illegal market, which requires a multi-facetted approach in my opinion. This includes:

  • Offering appropriate opportunities and incentives for illegal market operators to transition to a legal market
  • Ensuring that there is appropriate access for legal cannabis (online, bricks-and-mortar retail)
  • Ensuring that the legal market can compete on pricing (market structure, taxation)
  • Allowing for appropriate communications and education to be provided by the legal market (also known as branding or marketing…); allowing legal operators to tell our story and the story of our products and how they differ from a safety and quality standpoint
  • Enforcing the law on those illegal operators who refuse to transition to a legal position

Q: Is a listing to the TSX a goal in the foreseeable future?

A: It has always been our plan to move to the TSX.

Q: In your opinion, what is the reason investors currently only value WMD stock at $1.42/share?

A: I think we are the best kept secret in the cannabis industry. We have kept our heads down and have built a great company. Now that the industry is maturing, I expect that investors will start to value real operations and performance. To paraphrase Warren Buffett – when the tide goes out you see who is swimming naked. WeedMD is fully clothed!

Q: Why do you feel WeedMDs stock trades at a much lower valuation then many other similar sized cannabis companies in Canada?

A: WeedMD has always tried to stay true to its roots in execution and discipline. We have focused on building a business and have not participated in the hype and promotion that has surrounded cannabis in the public markets. So although we may trade at lower future multiples than our peers, we have actually performed much better than most over the past year on a relative basis.

Q: I am curious how your Marketing Team plans to leverage Color Cannabis in the rec market to carve out and own cannabis occasions? In the brand’s early-launch phase (and understanding the challenging legal landscape) what has been the biggest surprise or learning you’ve taken from Color Cannabis overall?

A: We feel that Color represents a unique approach to the rec market and branding in general in that we are not defining the experience and/or the occasion. We are instead recognizing with Color that cannabis is an incredibly individual experience and aiming to be the partner of choice for that experience. I think that we are on the right track so far with the launch and that Color does a great job standing out amongst our peer brands.

Q: Can you shed more light on the outdoor grow. Will the outdoor flower sales be branded under a different brand name? Can you advise what percent of the outdoor crop will be earmarked for flower sales versus extraction?

A: In all honesty the specific split between flower and extract-grade product from the outdoor is still an open question, but we are conservatively estimating somewhere between 10 and 25 percent to be sold as flower. As for the brands to be used, please stay tuned – there may be some surprises in store.

Q: What plans (if you’re able to discuss), does WMD have to capitalize on legalization 2.0 later this year?

A: Through CX industries, our plan is to become a major provider of raw materials, for example in the form of crude oil and distillate to our partners. We also will be producing and distributing several SKUs of 2.0 products, concentrating primarily on the vape and concentrate category to begin with. Once again, our goal is not to overcomplicate things, but to focus on a few areas and become best-in-class.

Q: Do you consider WeedMD a prime target for a possible acquisition, or will the team continue to pursue and leverage upwardly mobile partnerships (pita pit for example) and brand strength as ways of differentiating and staying competitive?

A: We are busy building a great company in WeedMD. Building it for the long-term. Of course, if an offer was made for our great company, we would be obliged to consider it – we are a shareholder-first company and I am a shareholder.

Q: Do you think the U.S. has better legislation to address these points? Even though federally legal in Canada — Are more restrictions around access and retailing of cannabis products harsher? What international markets are you excited for?

A: In the U.S., every state has its own rules and regulations, some very restrictive, some very much a free market. Each has its own idiosyncrasies and it’s tough to compare apples to oranges or to say that one is “better” than another at this point. Generally speaking, Canada is currently the clear leader internationally in scaled, regulated and compliant cannabis production. Ultimately however, this country is at risk of losing our first-mover advantage if we do not allow for the proper development of brands and downstream products. Internationally there is a lot happening. We are excited for the EU, which has a large market that is opening for cannabis, as well as some smaller but exciting markets such as Australia.

Q: Would you be able to shed some light on why it’s almost impossible to get your product through the OCS? If you don’t grab it generally within the first 5 minutes or a restock it sells out…

A: We have been steadily increasing our production platform and supply chain capabilities and look forward to providing a more consistent supply going forward to our adult-use market. We are focused on ensuring our medical patients also receive consistent supply which is why you’ll see most of our strains listed on our medical channel regularly. As we scale our production, availability is becoming much more consistent with 18 hybrid cultivation rooms now online.

Q: Does WeedMD intend to secure supply agreements with the remaining provinces?

A: We absolutely intend on signing on with the remaining provinces over time. Our goal has always been to establish great relationships with our partners, including with the provinces and we are now building more of these relationships as our production base increases.

Q: How do you guys plan on tackling harvest? Do you intend on using farm equipment to harvest or will it be taken down by hand? Can we expect some sun-grown flower to be available in the Canadian market or will it all go to extracts?

A: We will take outdoor down in multiple stages, first taking the top colas, then sides, then remaining biomass. This process will occur over a period of about a month as some strains come in earlier than others. We certainly expect some outdoor product to be available for either recreational or medical patients in flower form. How much will depend on strain, quality and volume.

Q: How do I volunteer to help with the harvest?

A: Send an email to [email protected] and I will make sure our team puts you in contact with the right people.

Q: Is WeedMD going to be recruiting young researchers looking to call WeedMD home?

A: We have great relationships with Universities and Colleges throughout Ontario. Stay tuned to our job postings and feel free to submit a resume to weedmd.com

Q: How is WeedMD leveraging technology today and where do you see the opportunity for the future to help drive innovation? Thinking mobile apps, IoT for facility and production optimization, data analytics, cloud computing, etc.

A: One thing I have learned is that you cannot try to do everything and succeed. We have a great amount of proprietary techniques, processes and systems in place in our cultivation for instance. Our team is always trying to make improvements in these areas to support and improve our core business. Layered on top of this, we bring on new ideas and technologies to support our business when and where we think it will make a difference.

An example of this would be our partnership with TruTrace Technologies, providing a cutting edge tool to validate our supply chain.

In summary, we are not out there spending money on general research or non-core initiatives – we are trying to find partnerships and develop internal technologies that will improve our core business and ultimately make us more profitable.

Q: I’m very unfamiliar with the art of cultivating cannabis outdoors, but I’ve noted a lot of apprehensive chatter regarding the inability to control external factors. Concerns include includes temperature, precipitation, the influence of off-site male plants, pests/disease, etc. I’d love to get your thoughts on this.

A: Our approach at WeedMD, towards everything we do, has always been to mitigate risk as much as possible. Whether it’s construction, operations in the greenhouse, or taking on a new endeavour such as outdoor cultivation, this is our mantra.

To mitigate risks properly, you must first acknowledge, understand and quantify them. Then you perform a cost/benefit analysis to determine the best path forward.

With the outdoor opportunity, we analyzed the risks, many of which you correctly have identified, and then set out to make sure they were minimized. Our current crop sits on 27 acres of land which is surrounded by our greenhouse, natural forest as well as 60 acres next door which we own.

In other words, our field is well protected. The soil was organically certified by the previous owner, who used to grow organic asparagus onsite, and therefore is pesticide-free. We grow in rich, sandy-loam soil that drains well in the event of too much precipitation. We have installed fertigation and thus can feed and water our plants as well.

While we cannot control the environment as we are able to in the greenhouse, we have done our best to ensure the best and most protected grow conditions for our outdoor crop.

When compared to the costs associated with growing in the greenhouse, including the capital expenditures as well as the costs to grow, we believe that growing outdoors is well worth the (well-mitigated) risks.

We believe we will be successful with this initiative this year – the remaining wildcard being the quantity harvested. As any farmer will tell you, this is very much contingent on the weather this fall. We are hoping for a late frost to enable all of the plants to reach their full potential.

That being said, we have a steady supply of quality cannabis coming from the greenhouse as well. Having multiple grow modalities is another form of macro risk mitigation. I also want to point out that as an industry leader in the outdoor grow this year, the learnings have been tremendous. We plan to build on the knowledge and experience of 2019 to maintain our leadership position into 2020 and beyond!