Run time – 12:36 (Transcript below)
Published 6/26/2018
Transcript:
David Kretzmann: David Kretzmann here with OrganiGram CEO Greg Engel. Greg, first of all, thanks so much for taking the time to talk with the Fool today. I thought we could just kick it off. I know you’ve had a good amount of experience in the cannabis space, so if you could give us an introduction of your background, what drew you to cannabis and what specifically drew you to OrganiGram?
Greg Engel: Yeah, no. It’s a great question. I’ve been in the cannabis industry for three and a half years now. I was previously the CEO of another licensed producer in Canada before joining OrganiGram last March. My background is that I came from pharma and biotech, spent a couple years in consumer packaged goods. Had a lot of experience in starting up companies both in Canada and internationally. What really drew me to OrganiGram is the company is very well positioned to really be a leader on the indoor production side and with a high quality product. That was a vision I shared when I joined the company with the board, seeing you know, there’s a unique opportunity here where we see most of the expansion and what other companies are doing is expanding through greenhouse production and there was an opportunity for us to really focus on a high quality product and focus on indoor because we know with better environmental controls and more consistent approach and proven technology, we have quite a unique growing ability in terms of we actually … Every one of our production rooms is three levels, so we actually really maximize that indoor side.
Greg Engel: I just had a chance to meet a lot of the people and had worked closely with some of the people and just was blown away with the people and the company, so it’s a great opportunity.
David Kretzmann: Awesome. In your previous role you were working with Tilray which is backed by Privateer Holdings. I’m just curious, what did you learn from Tilray and Privateer that’s helped shape your approach with OrganiGram?
Greg Engel: Yeah. I mean, it was a great experience for me in terms of starting in the industry. You know, I was really there and led the company as CEO to become one of the key leaders in the space in Canada, both on the medical side and being the first company to expand internationally, so I’ve been able to leverage kind of those key learnings in terms of approaching the international market, really focusing what we’re doing on the quality side. Then also from an investment perspective, you know, that company was part of Privateer Holdings, part of a private equity equity group but was very well connected on the global side in terms of meeting with a lot of investors. So, as I’ve transitioned over to being CEO now of a public company, leveraging that experience in working with funds and investors and making sure that I’m able to really convey the right message to people and they can understand who we are and what our vision is. So, it was a great background before joining the company.
David Kretzmann: At The Motley Fool we’re investors helping fellow investors, so as retail investors who might be newer to looking at the cannabis industry and cannabis companies, what are the one or two or three most important metrics you think that retail investors should be focusing on as they start to get comfortable with this cannabis space?
Greg Engel: Now, it’s a great question. I think the first would be there’s a lot of talk about companies in terms of their production levels and where they’re going to be and kind of the agreements that are being signed now in Canada and then internationally, and I think one of the things investors should be looking at, are companies meeting their timelines. Right? A lot of companies that put out forward looking statements in terms of we’re going to have X production by this date, and we continue to see companies not meeting those. OrganiGram, we’re very proud that we hit our guidelines. Last year we gave guidance that would be having our phase three completed this year in June, and we actually got approval last week and started to put plants in last June. So, we’re consistent in terms of hitting our timelines and I think that’s one key for investors.
Greg Engel: I think the second thing for investors is that we’re going to move into a marketplace that is really more focused on fundamentals this year. Right? You know, we’ve seen increase in sales, an increase in patient numbers and revenue but those will be dwarfed by what the adult recreational market looks like when it launches later this summer or early in the fall. Investors have to be looking at what agreements do companies have in place, what provinces are they in, what’s the distribution channel, what’s the inventory they have and then how successful they are at the time of the launch.
Greg Engel: I think the third thing is really what’s your brand strategy. Right? We’ve launched a comprehensive suite of brands including the Edison Cannabis Company, which is a concept we tested last year in the medical patient side. That concept is where we’re taking a large flower, hand trimmed, hand crafted, goes through a special curing process and at the end of the day there’s an opportunity for us as a premium product to create a brand around that, but we did have a unique opportunity to test that. I think you’ve got to look at a brand strategy, you’ve got to look at fundamentals and you’ve got to look at where is the company going to be at time of capacity, because this is going to be as a typical consumer packaged goods, what do you have to fill the shelf space and then do you garner support from the customers at the end of the day.
David Kretzmann: It’s looking more and more likely that Canada will legalize recreational cannabis use sometime this summer. With that on the horizon, looking out over the next two to three years and beyond, what do you do at OrganiGram to remain differentiated from an increasingly competitive cannabis landscape in Canada?
Greg Engel: Yeah. I think so. Again, for us there’s three fundamentals. One is that we’re focused on a premium high quality product in terms of flower, whereas the majority of other companies have gone to greenhouse production and with our improved quality we’re actually seeing increased yield so our cost continues to come down, which is a key factor. Right?
Greg Engel: I think the second is what are the companies international plans. We’ve expanded on the international side. We now have the export agreement in Australia. We’ve got a letter of intent for an equity agreement in a German company. We’re looking at other opportunities. We’ve invested in a hemp company to produce CBD out of Serbia. You’ve got to see Canadian companies going global. Right? That’s another key aspect.
Greg Engel: The third is technology. We announced a couple weeks ago we’ve got a letter of intent to invest up to 10 million dollars in a biotech company called Hysynth, which is very unique that they’re producing cannabinoids from bio-fermentation or yeast fermentation. They’re taking the gene for olivetolic acid, which is a precursor molecule to CBG and then with their own proprietary enzymes from those yeasts, converting that olivetolic acid into CBG, CBD and THC. This is infinitely scalable. You can produce a pure exact replica of a plant derived cannabinoid on a scale that you can just increase pretty quickly by adding more bio-fermentation vessels, which investors that invest in the biotech area would be familiar with. That’s a kind of proven technology that people use for vitamin production, for insulin production and for a number of other biologicals.
David Kretzmann: As someone who has several years experience in the cannabis space, what do you think is the biggest misconception out there about the cannabis industry or cannabis companies, whether it’s from investors, the media or the public at large?
Greg Engel: I think two misconceptions. One is that there is a misconception in terms of a lot of investors sometimes look at companies as being similar, to be frank, either it’s what’s the production capacity, but it’s not just how much you’re producing it’s how good is the product you’re producing. Right? Then I think the other thing is that we’re very active and we’ve had an agreement in place now for a couple years with The Green Solution to bring edibles and derivatives and those products to market when that’s allowed next year in 2019. I think that’s one of the things that is not on the horizon for a lot of companies. So, we know that it’s coming but I think for investors they need to also be thinking about what are companies’ plans for that in 2019, which is going to be critical.
David Kretzmann: I’d be curious to get your take just on the financing of cannabis companies. Obviously it’s been difficult for cannabis companies up to this point to raise traditional funding, whether it’s debt or whatever it might be. Just how do you approach capital allocation at OrganiGram and how do you think that might shift in the coming years once recreational cannabis becomes legal?
Greg Engel: Yeah. The market certainly didn’t start in a traditional way, so we didn’t have the big banks involved and it was really driven fortunately by the retail investor and also some large hedge funds that saw it as a unique opportunity. But we are seeing a shift into a more traditional investor base. Right? They’re much larger funds, very diverse funds that are really long funds looking at the space and we can continue to get investments from those funds and they continue to increase their exposure in the space. We’ve also seen the various ETF’s that have come forward and I think that’s changed the industry a lot, but I think having the big banks involved also increases the credibility. Right? That’s a big factor.
Greg Engel: I think one of the things we’ve done historically is we’ve helped U.S. investors as well and we’ve worked with a group to help them kind of in the transit, you know, not only as acquired equity but also help them liquidate if they’re looking to actually move on the investment they’ve made. It’s definitely gone through a transitional period but I think now that we know the Senate has gone through a third reading and the bill is going to be approved shortly, we’re going to see another influx of funds and investors coming into the space ’cause they have certainty now.
David Kretzmann: The final question for me then if there is anything else you want to share before we wrap up, feel free, but obviously you’ve talked a lot about a bunch of different initiatives going on at OrganiGram, looking out over the next five years what personally gets you most excited?
Greg Engel: I’m excited about, you know, again, we’re going to see such a transition in the space where companies like ourselves, we’re confident in what we’re delivering, you’ve gotta … You know, my experience … I’ve started four companies in the past, and two of those companies were sold off to large public companies and my experience is always that you’re not following trends. You want to look at going in. You want to jump ahead of the industry, look forward, see what some of the innovations that you can move ahead of your peers and move ahead of the competition. Things like Hysynth, the biotech company I’ve mentioned where that can be game changing. Right?
Greg Engel: Things like that really excite me but I also think we’re moving from an unregulated industry, an unregulated black market in Canada and over time in other countries as well, to a regulated space and I think we’re going to see just a broader … We’ve seen it today. Right? There’s a broader acceptance and socialization of cannabis and I think that continues to change over time. I think that’s one of the most exciting things is that the public discourse and the public discussion and acceptance of cannabis as an alternative to an alcohol beverage, you know, beverage alcohol or to illicit drugs or other prescription drugs even, has changed very dramatically in the three and a half years I’ve been in the space and that’s going to just accelerate now that we’re going towards legalization. ‘Cause the last thing I would say is the world is watching Canada. This is a very unique experiment in terms of Canada being the first kind of G7, G20 country in the world to actually legalize cannabis on a national scale. So, it’s going to be exciting times over the 12 to 18 months or the next three years.
David Kretzmann: Absolutely. One quick follow up. Since you mentioned your background with mergers and acquisitions both in your own career and obviously within the cannabis category, kind of seeing an accelerated pace and bigger deals of acquisitions and mergers so how do you see that increased and accelerated M&A impacting the competitive landscape within cannabis, say over the next three to five years?
Greg Engel: I think we’re seeing two things happen right now. One is that the smaller newer companies that are entering the space are struggling to raise capital. We’re seeing the more established companies like OrganiGram and others that are in that kind of top 10, top 15 groups, you know, we’ve been able to track capital because we’ve got such a lead on other companies. Right? We’re getting approached all the time about potentially acquiring some of these companies but at this point we haven’t found anyone that makes sense. I think what you’re seeing as well, some of the acquisitions have been driven by, to be frank, some back filling.
Greg Engel: So, some of the companies that had not been in a position to kind of meet or hit the demand that they had anticipated, have done acquisitions to kind of supplement and fulfill what they’re not able to accomplish on their own. We may see more of that but I think you’re going to see a lot of active … You know, we’ve seen investments from beverage alcohol, we may continue to see more of that and I think we could see consumer packaged goods come into the company and make investments. Right? Into the industry and make investments. Or tobacco companies or pharmaceutical companies. Right? I think we’re still in the early days of what is going to happen in this marketplace and I think they key is to be well positioned for all of those potential opportunities if they happen.
David Kretzmann: Alright. Well, Greg Engel, CEO of OrganiGram, thanks so much for taking the time to talk to The Motley Fool.
Greg Engel: Great, thanks David. Appreciate it.