Scott Boyes is CEO at Canadian Bioceutical, which is one of the most expansive cannabis companies in the United States.
What makes your company different from others in the cannabis space?
Canadian Bioceutical, or BCC, is establishing one of the largest branded multi-state cannabis companies in the US. Unlike most Canadian LPs, BCC’s core assets in Arizona are solidly profitable and cash flow positive. While the company has raised funds to fuel its aggressive expansion strategy, operational expenses are more than covered by the cash flow from the Arizona operations.
Another important difference with many companies looking to execute on a roll-up strategy in the US is that we have strong operational know-how in terms of cultivation, production and retail. Many of the other operators in the US are investors, who bring capital, but not necessarily a lot of know-how about actually operating in the sector. Our well-established best practices, based on our experiences in Arizona, are now being transferred to the newest assets in our portfolio, a model we look to replicate in multiple states. This, we believe, will accelerate time to market and enhance market share capture.
We are on our way to becoming a dominant player in both the medical and adult use cannabis sectors by driving organic growth and pursuing a roll up strategy. When all of our various agreements and options are completed we will have up to ten dispensaries in four states across the US.
How did you get into the cannabis space?
I was working as a consultant to someone who wanted to start a cannabis enterprise in Canada. While I eventually I found that the applicant was unlikely to get a license, in the meantime, had become very knowledgeable about the cannabis space. At the same time, in my personal life, I encountered a situation in which I saw first-hand the benefits of medical cannabis and became a strong believer.
Together with other people in the nutraceutical space, we determined that there was a huge opportunity and decided to pursue this. While we make our first strides in the Canadian market, through our still live application to become a licensed producer, the time it takes to obtain LP status is long. With some 40 years of my career focused on the US, I was very aware of what was going on south of the border, and felt that the US market was the way for us to go. While the US industry in many ways is years ahead of the Canadian market, there are a number of aspects that make this market particularly interesting, namely:
- Rapidly growing
- Large, but very fragmented with many undercapitalized operations limited in their ability to expand
- Strong operators looking for strong financial partner
- Investor driven operations looking for strong operational know-how
These are the general aspects of the US cannabis market that make it ripe for a roll-up strategy, and then there are a number of state specific parameters that have led our selection of specific geographies to operate in, namely:
- States where regulations limit the number of market participants
- States introducing adult recreational use (this is not a must, as reflected by our activities in Arizona and Maryland. In these two states, the limitations on the number of market participants was one of the factors making entry very interesting for us.)
- States where foreign ownership is allowed
- Pro-business climate
When we met Beth Stavola, who founded the highly successful Health for Life and Melting Point Extracts brands in Arizona, we felt there was a strong opportunity. We immediately identified a number of synergies that would allow us to take these two brands into multiple states, and we completed the acquisition of Beth’s Arizona operations in January of this year.
Walk us through a normal day.
The interesting thing about the cannabis space is that there is no typical day, the sector is simply developing too rapidly, and there are too many opportunities to pursue. That said, there are themes that seem to be present on a nearly daily basis, such as operational updates, due diligence on potential acquisitions, processing the paperwork on acquisitions in progress and communicating with our investors. I travel a lot, and I tend to spend a fair portion of my time at the various locations we operate out of.
What has been your biggest lesson about working in cannabis, and in business in general?
Honesty and loyalty are key in building value sustainably. Also, there are no short cuts, you have to put the work in, which goes both for operations and for due diligence.
What do you see as your biggest opportunity?
The market opportunity in all of the states we are and will be operating in is significant. It is said the US cannabis market in total is over $50 billion, while only some 13% of this was transacted in the legal space. As medical cannabis continues to gain traction and states implement adult recreational use legislation, we anticipate a large migration from the illegal to the legal system. This creates a very significant opportunity for well capitalized companies to pursue. We have early mover advantages in all four states are and will be operating in: Arizona, Nevada, Massachusetts and Maryland. Nevada and Massachusetts are both moving to adult use markets.
While the Nevada population is not that large, Las Vegas, where we are located, receives some 42 million visitors annually, many of them for entertainment purposes, and we anticipate the state to show strong adult use growth upon implementation.
Massachusetts is surrounded by states that have no adult use allowed, and hence we anticipate tourism to play a major role in growing this market too. The ability to be an early mover, having the capital to not only develop our assets, but also implement active marketing campaigns, combined with the use of our best practices established in Arizona, we believe will enable us to accelerate market share development in these states.
Do you have any thoughts or concerns about Sean Spicer’s statements indicating the Administration’s intention to crack down on recreational cannabis?
As long as cannabis remains a schedule I controlled substance at the federal level there will be some level of political risk. However, we consider this risk marginal for a number of reasons.
First and foremost, both President Trump and Attorney General Sessions have stated at various times that although they have their own thoughts about cannabis, at the end of the day this is a states’ right issue that is to be dealt with at the state level.
At the state level, and in congress too, we see a lot of support for the sector. Job creation and the ability to generate taxes to fund other programs make this a very important sector for the economy. Currently there are some 12 house bills filed with Congress that all seek to protect or even support the cannabis industry.
We consider it unlikely that the U.S. federal government will intervene in a negative way on our ability to operate and execute on our strategy.
We have an early mover advantage in four states, and have a strong foothold in Arizona, where we operate our profitable core assets. Already our Health for Life and MPX brands capture over 5% of the entire market there, which was estimated at around US$240M last year (2016).
Our plan is to expand production capacity to support growth of our dispensaries there and grow MPX product availability to further support market penetration of the MPX brand. Furthermore, we expect to replicate this success as we continue to expand our operations in the three other states we are and will be operating in: Nevada, Massachusetts and Maryland.
Also, our success to date with proven access to capital on the public markets and strong cash flow, BCC is extremely well positioned to pursue an aggressive but controlled and thoughtful acquisition strategy. This, as a fragmented market sees many profitable operations remain undercapitalized creating an opportunity for H4L.
What is the most frustrating aspect of the cannabis industry today?
The cannabis industry, like any other highly regulated industry, faces challenges. However, with a strong executive team that includes seasoned cannabis industry executive Beth Stavola, who successfully launched the Health for Life and MPX brands, we are well equipped to navigate any issues. Furthermore, we are solely focused on executing our strategy by creating strong, recognizable brands and replicating our success in Arizona across the other states we’re operating in.
What would you say to those who are considering investing in your company?
We already have a highly profitable core with our Arizona operations. We have two fully operational dispensaries there operating under the H4L banner with a third under development. We’re also expanding rapidly into the medical and adult use markets in Nevada, Massachusetts and Maryland. Once we’ve completely developed all of our assets we will have:
- More than 9 million grams per annum cultivation
- More than 1.2 million grams/annum high-margin concentrates production
- Ten dispensary stores
- Expansion into edibles
We’ve got a significant pipeline of established accretive, and high potential early-stage opportunities, creating significant growth potential. And we’ve got an experienced management team and established best-practices to help accelerate asset development and market share capture. Lastly, we’ve got a strong balance sheet and are well equipped to fuel growth.
What are the biggest challenges of being a publicly offered cannabis company?
A few years ago I would have said the stigma that is attached to the cannabis space in general. While to some extent that stigma is still there, it is rapidly disappearing. The medical benefits of cannabis are well documented, both anecdotally and scientifically. The rapidly growing number of medical practitioners prescribing cannabis and patients advocating for cannabis has resulted in much stronger mainstream acceptance of cannabis as a beneficial substance. Consequently, this no longer is our main challenge. The main challenge we have currently, beyond those typical to any public company, is a lack of education in Canada with regards the U.S. cannabis industry and the perceived political risk related to the Trump administration.
While the U.S. cannabis sector is very fragmented with many smaller participants, it is a thriving industry, generating hundreds of thousands of jobs, hundreds of millions in tax revenues, and, most importantly, many patients who benefit from the medicinal effects of cannabis.
The opportunities for a company like BCC, which is well-capitalized, are enormous. This is something that the Canadian investors, who have focused nearly exclusively on the Canadian cannabis sector, need to become more aware of. I am confident that this will happen and that we will start to see stronger interest in US-based investment opportunities.
With regards the Trump administration, most industry insiders will tell you that they consider the political risk, while present, minimal. Employment and tax generation are very important in this respect. We have growing congressional support, with currently more than ten bills and amendments before the house. At the local level, also, the industry is receiving considerable support. Again, this is something that the investment community needs to be educated on. I strongly believe this will happen, but it might take a little time.
What advice would you give to anyone looking to get into the cannabis space?
For investors, do your research. If an investment opportunity seems too good to be true, it likely is, but that goes for all investment opportunities. It really comes down to doing your research and identifying those companies that will do well within the context of a rapidly developing industry that is at the beginning of capitalizing on an incredible opportunity.
To actually get engaged with the industry itself, work out what you can bring to the sector in general or a company in specific. What are your skills that match the needs in the industry. Practically speaking, do as much networking as you can. Get to know the industry, the participants, and visualize yourself and your skills in this context and identify what a good fit would be and then pursue it.
What are your biggest tips for branding cannabis?
I don’t really want to have people look too deeply into our kitchen, but some things that are key are product quality, customer experience in dealing with you (e.g. availability of product), clear communication of the characteristics of the various products and the outcomes, or benefits in a medical context. We have seen very strong traction and brand recognition for both our Health for Life and MPX brands in Arizona and Nevada. We believe this is the result of providing a range of products of consistently high quality that consumers have come to know and trust. Trust is probably one of the most important aspects of any brand, and maybe even more specifically in the cannabis industry.
Do you see any big changes coming in the future of cannabis?
Yes, we are only at the beginning of the journey. I think that in terms of products, we will see a continued shift towards concentrates, and away from dried flower. Companies will grow and amalgamate, recreational use will spread to more and more states and countries, while on the medical side we will see more double-blind placebo and FDA approved studies and compounds for specific diseases. Cannabis will become a mainstream medical and consumer good that in ten or twenty years from now will be as commonly accepted as alcohol.
Do you consume cannabis? And if so, what's your favorite way to consume?
I personally do not, but I know many people, some close to me, who have benefited greatly from the medical aspects of cannabis, which is what won me over in the first place.