Licensed producer CannTrust appears to be betting the farm on low-cost outdoor plant production to supply cannabis for high-value extract products such as edibles and vape pens, a business strategy that hints at the future of Canada’s licensed cannabis industry.
Ontario-based CannTrust released its first-quarter results to investors Tuesday. The company is already growing plenty of its crop indoors, harvesting 9,424 kilograms in January, February and March. CannTrust’s indoor production facility in Ontario’s Niagara region is slated to produce about 50,000 kilograms of cannabis per year by the third quarter, with a planned expansion increasing that to 100,000 kilograms annually in mid-2020, according to a management discussion and analysis document.
But CannTrust is also building an outdoor farm in British Columbia that could eventually dwarf that indoor production. The company expects the outdoor site to yield 75,000 kilograms of weed from its first harvest this fall, and somewhere between 100,000 and 200,000 kilograms annually after it expands in 2020. (The site has not yet been licensed by Health Canada.)
That outdoor cannabis should cost CannTrust only about $0.15 cents per gram to harvest, chief financial officer Greg Guyatt said on a conference call with investors. By comparison, it currently costs the company somewhere between $0.70 and $0.75 per gram to harvest indoors, he said.
CannTrust’s quest for cheap outdoor cannabis is directly linked to the company’s future plans for extract products, CEO Pete Aceto told investors on the call.
“Now remember, our goal here is to leverage our leadership in extraction capability, and to produce cannabinoids at a significantly lower cost, specifically for the new formats and products that we plan to bring to market once they’re permitted,” he explained.
Compared to lightly processed, traditional products such as dried bud or pre-rolled joints, extract-based cannabis products such as edibles and vape pens require relatively large amounts of cannabis to refine into a concentrated format. Companies that want to sell cannabis-concentrate products after the appropriate regulations come into effect will therefore have a significant incentive to grow lots of plants at the lowest possible cost in order to keep the extracts flowing.
CannTrust is especially bullish on cannabis oil vape pens, Aceto said, citing his belief in strong consumer demand for smokeless forms of cannabis.
“We’ve looked to the experience in the U.S., and we’ve seen that that’s been a significant driver of the cannabis market in the states (where cannabis is) legal in the U.S., and so we’ve purchased hardware, we’ve already started to stockpile distillate, and expect to have vape pens on the market as soon as we’re permitted to do so,” said Aceto.
Cannabis-infused coffee pods called “BrewBudz” should also be in the offing from CannTrust in the near future, he said.
High-value concentrated products like those, produced from low-cost, outdoor cannabis, make for an attractive business proposition for CannTrust and its investors, but the company isn’t stopping there — it is looking for ways to produce cannabinoids at even lower costs than outdoor production can provide by using biochemical reactions.
“We see the synthesizing of cannabinoids, in the future, as a very reliable, at-scale way to continue to drive the cost of cannabinoids down,” Aceto said on the conference call.
“So we definitely see this is a reality in the not-too-distant future.”