Episode Transcript

John: I'm the CEO co-founder of Delta 9 Cannabis and Delta 9 Biotech. We are a Manitoba based Licensed Producer distributor soon to become retailer of medical and recreational cannabis products here in Canada.

Trevor: And for those who don't know and I think lots of people do know your story. You started this company. I'm going to say 2013 ish with your dad does that sound right.

John: Yeah actually working with medical cannabis patients back in 2008 2009 but formally founded the company in 2012 with a look forward at the new or I guess the incoming MMPR regulations at the time and obviously now the ACMPR. But yes some humble beginnings back in 2012.

Trevor:  No thank you very much and we we we love a Manitoba success story. So I really want to get to the the recreational stuff because you know that's what's coming up next. But can you just give us a little bit of background so you guys have been doing medicinal for a number of years now. I think you are like number two or number three in Canada with the license. What how has the medicinal thing been going and what have you learned so far.

John: Well I you know we had some early experience on the medical side of the business and I certainly believed in the product in terms of its medical or medicinal attributes. So that was really our foray into the industry you know really incredible how the medical side of the business has evolved since the inception of the MMPR in 2013. Originally we had I think 3 signing doctors in the province of Manitoba here and we had less than 100 registered patients. That's ballooned over the last few years to several hundred signing doctors and we currently service about 4500 patients nationwide with our largest market being here in Manitoba in the thousands of patients. So you know again really incredible to see the growing acceptance. Incredible to see doctors and patients coming on at an accelerated rate and in a lot of success stories in there.

Trevor: That's great. And we we've mentioned this in a previous episode but just interesting with the different laws so as as a medical Licensed Producer you are allowed to service customers patients across Canada right. Whereas with upcoming retail will just be within Manitoba.

John: Yeah our medical or the medical side of the business allows us to ship via Canada Post or home delivery across the country. We actually do service patients in every single province and territory including one or two in Nunavut. So we do touch every part of the country currently. Now on the recreational side of the business we're going to see laws and regulations coming in on a province by province basis. So I mean effectively every province coming up with their own methods or mechanisms for distribution and retail of course here in the province of Manitoba we're one of the four selected retailers.

Trevor: No and I think that segues nicely into so what's going to be going on with the recreational so I think I've read that you guys are considering starting with four stores. Brandon, Winnipeg and Thompson. Is that right?

John: Yeah the hope for us here and it is full steam ahead on the retail rollout is two to have two stores in Winnipeg in this calendar year followed closely by one in Brandon and one in Thompson.

Trevor:  And I've got to ask do you think you'll be ready for October 17th?

John:  We'll certainly have at least one location hopefully more than that's open for the bricks and mortar retail on October 17th. And you know of course we'll be ready on the mail order site as well to service those those Manitobans who are not covered or are not close enough to one of our retail locations.

Trevor:  No and I think that's important as we mentioned on a previous one that the Manitoba government had decided to allow online sales so for people in smaller communities like say Dauphin after October 17th I assume there would be some retail online outlet that I could go to that says Delta 9 order order what I'm looking for and have it shipped directly to me.

John: Yeah absolutely we will be servicing patients through our Web page Delta9.CA and again available to patients in every corner of the province.

Trevor: Fantastic. Now on a previous episode we sent our cohost Kirk down to Colorado and he checked out a Medicinal Dispensary and in Colorado they do both medicinal and recreational so it was a good good sorta crystal ball for us. So what do you think your bricks and mortar store will look like. I think I read somewhere you kind of looking for an Apple store theme.

John:  Well you know I think everyone leans on that as as a model or in referencing the Apple Store layout but I mean really we use that as a jumping off point to simply emphasize the stores are going to be very very clean very well lit. You know similar to any retail experience that you would see in going to a large scale shopping center. Now our stores will target I'm going to call them on the way home locations. So trying to align ourselves with shopping centers that are you know seeing grocery stores liquor stores things like that drugstores really trying to provide that one stop shopping experience for Manitobans making. I want to say recreational cannabis an accepted part of daily life here in Manitoba.

Trevor: Excellent. And so now I've walked into one of your retail outlets one of the things that and everything is in flux so some part of this is rumor but some of the other provinces are apparently talking about not letting we're calling them the bud tenders. But the people who work in the store the bud tenders not letting them talk to the customer very much like if I go into a liquor store now you know the people who work there have no problem telling me about you know the flavor profile of this beer or you know where that bourbon was brewed or anything along that lines. What sort of education are you guys looking at for your bud tenders for the people who work in the store. To if I were walking in for the first time and I don't know what I want. How will I be helped out by the staff.

John:  You know so few two parts to that question. You know I think we're very fortunate here in Manitoba to have a retail framework that's allowing for private retail and you know really contributing there to an experience. I want to say that's differentiated from a government run store. We will be emphasizing very heavily the education component and of course that means training for our staff. So we'll be again placing a heavy emphasis on training both on the product training side ensuring that our you call them bud tenders don't know that we've decided on that name yet.

Trevor:  No no you don't have to use that. That's that's been our colloquial colloquial term so far.

John:  No I like it we'll use it. We'll use it today anyway. You know heavy emphasis on the training for those those staff A on the product knowledge side ensuring that they have a good understanding of the cannabis product the cannabis plants the whole flower the pre-rolled products so-called those are the smokable or the vaporizable products the more traditional cannabis but also the extracts the ingestible oils the gel caps that will be available for day one of legalization and you know expanding beyond that into the expanded extract regulations in 2019. A good understanding of edibles extracts products derivatives drinkables. All of those products we may see down in those stores in Colorado.

Trevor: I think that's a great segue because and I'm often a little confused right at the beginning edibles or not are not going to be like edibles and other we'll call it what's going to be legal as of day one. I assume I'll be able to go in and get a smokable flower. But what else do we know will be legal to sell you know October 17th.

John:  Yeah, no that's absolutely correct and we will see the I'll call it the whole flower bud. So, the simply the manicured buds product we will see milled products as well or blended products. We will see those products placed into a pre roll format in several different sizes. We'll also see the ingestible oils and the gel cap products for Day 1 of legalization but that is the extent of what is allowed from the production side. Under the federal existing federal regulations, the federal government has promised to expand those I'll call them extract regulations in 2019 to again allow for a little bit more full slate of products. You know our hope and we don't quite have total clarity on what those quote unquote expanded extract rates will be. Our hope though is that the federal government will recognize that many of these products are available on the black market today. We need to see a full scope of these products really to be competitive and give consumers a full product offering.

Trevor:  And I think that's great and I'm sure I read this right. But it sounds great if I did. Did I read that you know if when the extraction regulations change you guys are talking with Fort Gary Brewery about having a hemp beer?

John:  Well you know what we've already rolled out a hemp infused beer that contains alcohol but does not contain any of the THC or CBD. So that was you know a fun marketing component and collaboration for us with Fort Garry launched earlier this summer. Phase two of that collaboration is planned to come in in 2019 and hopefully under these again expanded extract regs and that would be a de-alcoholized and cannabis infused beverage both for THC and CBD. It's our feeling that the drinkable segment whether that you know beer wine soda pops is a really interesting take on that extract side.

Trevor:  No that's that's fascinating. I like the sound of that. Listeners know that Kirk's Kirk's the Scotch guy. I'm the beer guy. So, you know that the beer products sound really good to me.

John:  Check out the Delta 9 legal lager on MLCC shelves right now.

Trevor: I will. Thank you. So again, just to compare to Colorado because you know we have to compare it to something. So, in Colorado they have medicinal and recreational and the store Kirk went into literally had two sides. You know if you went to one side of the store you had to have your green card and you're buying medicinal. And the way regulations are in Colorado is actually even not taxed. And then over on the recreational side it didn't have to have a green card. You just got to have proof of identity and age and then you could pick whatever you wanted in in the brick and mortar store. If I was a medicinal patient is there anything in there for me or how is that going to work out. Have you sort of figured out what the differentiation is going to be between medicinal and recreational your bricks and mortar store.

John: Yes. You know a little different I guess than the Colorado market. And we're not really seeing a blending of or division within one storefront of medicinal and recreational. The Federal Government will be maintaining the existing medical mail-order program and that will continue post legalization October 17^th. So, we're not going to see a huge amount of change in terms of the medical market. We are seeing some increased flexibility in terms of patients being able to take their prescriptions or medical documents to different suppliers much more easily so providing for a little bit more flexibility in the medical side of the market. But in the stores and you know again differentiation from Colorado we're actually going to see excess excise taxes applied to both medical and recreational sides of the business. So you know it is something our industry has lobbied against any of these excise taxes or otherwise being applied to medical products. But within the retail setting you'll essentially see a homogenous product mix of all of these different products. We've mentioned not necessarily differentiating between medicinal or recreational and just speaking to the Delta 9 Stores. We will have the ingestible oils. We will have the gel caps available and not just on the THC side of the spectrum we will see the high CBD products. So I want to say that these more medicinal or therapeutic products will be available in Delta 9 retail stores.

Trevor:  Good. Good to know I'm sure we've got you know frankly probably most of our listeners are still on the medicinal end of things so I'm sure they're interested that so that segues nicely into your strain's so flipping through your website. I saw about 20 different ones on there right now I think and they seemed to be mostly listed as sort of on the higher THC lower CBD and do I have that right or do you do you guys do sort of a full batch of different strains with different amounts of THC and CBD.

John:  You know we're right now from our website listing we actually have about 30 different strains under cultivation right now. It takes us a decent amount of time to refine these strains to really find a genetic or a phenotype that we're happy with that that's stable and that gives us a finished product that ultimately patients will be happy with. Now it's kind of a funny look back at the cannabis industry in general over the last 50 years on the recreational side of the business breeders breeders growers in the black market have typically been breeding the highest potency THC strains possible and breeding out the CBD component so it's actually rather rare to find products that are high in the CBD spectrum and that lower in that psychoactive component to THC and the ones that you do find are typically less stable than some of the high THC genetics.

Trevor:  That's interesting.

John:  Currently we're we're producing 3 I'll call it high CBD varieties with different spectrums a 1 to 1 ratio a 1 to 2 ratio of THC to CBD. So again that will play a part of our product mix but it's really been a I guess a tougher part on the inside look at the industry for Licensed Producers to be developing these high CBD products in light of the black market really running with high THC for so many decades.

Trevor:  So what are your your geneticists working on on trying to sort of get nice balances of the smells and the effects of terpenes into your different strains.

John:  I mean it's something that you know until fairly recently was not a large part of the industry terpenes certainly becoming much more interesting. You know when we started to first take a look at this it was more just for data than anything but I know there is a growing body of research around some of the therapeutic value potentially for some of these terpene profiles. So some interesting I guess longer term developments on the medical side may be coming around these terpenes and some extracts again focused on certain terpenes as well really for us it again was informational we want to provide patients with as much information as we can and then on the recreational side of the business of course this becomes a little bit more like wine where you know as you said you walk into your your LC and you know you can ask a sales representative about the bouquet for a certain wine or whisky product very similarly with these recreational cannabis products. I think we're going to see a broad spectrum of these terpene profiles everything from the musty the more dank profiles all the way to the sweet berry lemony profiles as well so we'll again see a full spectrum and I think giving consumers an interesting look at the full spectrum of cannabis terpene profiles.

John: So are grow methodology as you said focused around these rather small modular units that we call our Delta 9 grow pods. You know when we took a look at it expanding out our facility rather substantially we knew we wanted something that was modular scalable hopefully ultimately stackable within our facility and we achieved that through these grow pods. Now I mean apart from just the business side of it really our focus is on building a brand whether that's medicinal or recreational from the ground up and to me that that comes from high quality these rather small modular areas. Give us a very high level of control over the grow space and all those factors that directly impact product quality so that that's light intensity that's temperature humidity parts per million CO2 saturation and we're able to dial that in very precisely within these areas and with every pod being identical it allows us to create a standardized and high-quality product crop after crop. Now again whether it's the medicinal or the recreational side of the industry and trying to build a brand there's an expectation of quality there's an expectation of standardization. And again, we feel we're able to achieve that through this pod system.

Trevor:  No and I thought it was fascinating and again I'm not a plant biologist just but if anything went wrong in a pod say a disease, etc. It should theoretically be contained to that pod and not spread through out the whole crop right?

John: That's where I start to get into my investor pitch a little bit more but yeah there's an inherent I'll call it risk mitigation strategy here in compartmentalization of risk and that is you know whether it's a outbreak of pests or or bugs or mold or mildew or whatever the case might be. There's a very small chance that any of those issues would spread throughout our entire facility and we compare that risk profile versus a large open greenhouse where these issues can become systemic very quickly. There is that built in risk mitigation factor.

Trevor:  Well I'll let you do a little bit more on the the investor side of things because I love this thing and we'll promote Manitoba here. You called it the Manitoba advantage. So what's so good about having being a Licensed Producer in Manitoba? I hear several things that you need are cheap here.

John:  Well apart from that I'm born and raised here as you said several natural advantages. The major cost centres for any Licensed Producer in our space are going to be power as in electricity labour and warehousing space and we're very blessed here in Manitoba to have cheap power cheap cost of living and relatively cheap labour and relatively cheap and abundant warehousing space in this pod model allows us to get into any preexisting warehouse not only in Manitoba but all over the world and expand very quickly. So, you know a lot of advantages I think too to being in Manitoba and growing out here in our own backyard you know really I think Manitoba has an excellent opportunity here to be investing in the cannabis space and seeing all the benefits that come along with that economic expansion.

Trevor:  And you mentioned all over the world. I was surprised to learn and like you you guys are exporting honestly. I would have thought there'd be too many controls but obviously not. So you guys are exporting all over the world. And like I read Europe and Germany. So I take it there's not too many or you guys do are really good at the paperwork for being able to export you know what could be a controlled substance to other countries.

John:  So we've executed now distribution agreements with a group of Spanish German pharmacies with an eye for export. Now we haven't actually executed on our first shipment yet. As you said there's a number of steps along with the paperwork to walk through before the EU will allow a company to export cannabis or controlled substances into these countries. Part of that is walking through certification for GMP or good manufacturing practices and it's an expansion actually of the very strict production requirements that Health Canada puts on us takes those an entire step further really requires pharmaceutical grade manufacturing facilities. We're walking through all of those steps to ensure that we are GMP compliant and we are hoping to have our first shipments out to Europe and into Germany by the end of this year.

Trevor:  Yesterday the Manitoba government started listing some of the extra fees slash taxes slash things that are going go on the recreational side so they have a social responsibility fee that's going to be 6 percent of revenues. They've got a point seventy five cent per gram tax or whatever you want called on recreational cannabis plus another 9 percent. And my guess is there'll be PST on top of all that. Other than that we all want less taxes on everything. What do you think about Manitoba's plan for how they're going to tax recreational cannabis or what we know about so far.

John:  Yes I guess just one point of clarification on that is we've actually seen the province announce now that they will not be subjecting recreational cannabis products or medical cannabis products to PST.

Trevor:  Okay. That's good.

John:  Actually, one of the benefits in yesterday's announcement. You know I mean a lot of these fees the markups the social responsibility fee not unexpected from an industry side and you know of course we've been collaborating with government for quite some time. We've known that the federal government would be applying an excise tax the province has now outlined what their percentage will be the 75 cents per gram. And we're certainly supportive of that. You know I think this gives us a level of certainty as industry that we now know where our starting point is of course we want to be competitive with the black market and deliver a product to consumers that add a strong value proposition. So, you know I think people need to keep in mind this is a starting point. We're starting to see products that are reaching above the black-market prices. Well then and then industry and government need to work together to bring that back in line and make us competitive. I don't see it as a bad thing that they're emphasizing the social responsibility spending. We've seen markets like Colorado where the rollout to legalization can be a bumpy road. If some of the education components are missing so you know better safe than sorry on the lead in here. And again, I don't think a bad thing for industry to have clarity.

Trevor:  You're very good about being politically correct about taxes. I'm very impressed. Thank you.

John:   We all hate taxes I can say that on the phone too.

Trevor:  So before I let you go so just a couple sort of crystal ball things so you crystal ball sitting there on your desk where where do you hope or think that Delta 9 is going to be in five 10 years from now.

John:  Well you know obviously planned expansion of our cultivation facilities here in Manitoba as well as our joint venture partnerships across the country on the on the on the cultivations side. So, we'll certainly be expanding investing fairly measurable amounts on that side of the business over the next three to five years. Our strategy is very much focused around the vertical integration so getting ourselves into retail and really controlling the distribution side. You know we're seeing opportunities for retail now in Manitoba Saskatchewan Alberta and British Columbia and some whispers coming in about potential for privatized retail in Ontario as well. I mean my hope would be that we're going to see not only expanded production distribution capacity but also Delta 9 Cannabis stores spread across the country.

Trevor:  That sounds fantastic. And again, this might be in flux but just if you grew as a license producer in Manitoba could you sell to the equivalent of Saskatchewan Liquor and Lotteries and then then it goes to retail stores there. Or how does it work when you're trying to sell recreational across provincial borders or does it depend on the province.

John:  You know what again vary province by province in Saskatchewan, we are actually seeing direct to retailer being an option. So selling and not having a provincial distribution or marketing board Alberta very similar to Manitoba has structured a provincial distribution points all product needs to go through that provincial distributor and then out to retailers and you know of course there's other provinces as well that are taking a complete I'll call it monopoly government standpoint on on retail and you know very simply we would be distributing to that that that government entity and they would be responsible for retail. So it's interesting to see every provinces take on just what legalizations going to look like.

Trevor:  Thank you you've been very generous with your time. Is there anything I missed anything you'd like the listeners of Reefermedness to know about Delta 9 or the upcoming recreational cannabis legalization.

John [00:27:12] Just to keep an eye out for Delta 9 cannabis stores opening on October 17th and through the end of the year into next year and if we're not close enough to you please check us out at Delta 9 dot CA.

Trevor [00:27:25] Thank you John Arbuthnot that was fantastic. I really appreciate your time. It was a great interview thanks for making time for us.

John [00:27:32] Thank you very much for having me.