October 10, 2018
David: David Kretzman here at the Benzinga Cannabis Capital Conference and I’m joined by a special guest, Dooma Wendschuh, the co-founder and CEO of Province Brands and this is a company that I’ll admit wasn’t on my radar going into this conference but I realize you’re the company that’s been in the headlines recently. I caught the tail end of a presentation you gave at the conference.
You describe yourself as the world’s first cannabis brewery so can you give us a background on what led to the founding of Province Brands and what you’re working on?
Dooma: Well, I received my undergraduate degree from Princeton University where we drank a lot of beer. Pretty much every Thursday and Saturday night we got obliterated and the people I spent time with there are now my best friends. We drank together and we’re so close still this late in life and those experiences are some I’ll never forget but I know now that I basically shortened my lifespan by drinking that much.
Alcohol is amazing and alcohol’s played a key role in so many important moments in my life but it’s also done so much harm to so many people and to people I’m very close to. So we started this company to create the first ever alternative to alcohol, something that could be a safer and healthy alternative that can be used in all the same situations where alcohol is used and could give people those great experiences like I used to have when I was an undergraduate at Princeton but without shortening their lifespan, without the eight types of cancer, the liver disease, the heart failure, depression, dementia. So that’s where the idea came from and that’s what we try to do at Province.
David: So how do these cannabis-based beverages compare to your traditional beers?
Dooma: Well traditionally beer is brewed from barley which is a corinne. We actually have developed a patent pending process to use cannabis as the starting material from which to brew our beer in place of barley. Now a lot of people think beer is brewed from hops, that’s not true. Our beer also includes hops. Hops is like a flavoring element in beer so our beer is made from cannabis, hops, water, brewer’s yeast, that’s it.
So we’ve developed an entirely new brewing tradition and I can tell you that it has not been easy. When we started this company we had this idea to do it- I didn’t know anything about brewing, and my co-founder’s extremely experienced in the spirits industry but he doesn’t know a lot about beer either so we had to learn and we jumped on a plane, we flew around, we met with the top master brewers from around the world and we said, hey can you help us? We would like to brew a beer from the cannabis plant and we were seriously laughed out of so many meetings.
People said, you can’t do that, it’s impossible. Beer is brewed from barley, you need the carbohydrates to mash into sugar so the sugar can ferment into alcohol, and we didn’t let that stop us. We ended up developing our own process that actually uses a waste stream from the cannabis industry. So here in Canada we have hundreds of millions of square foot of cultivation coming online.
All those farmers they’re just harvesting the flower at the top of the plant. Maybe some of the leaves they can make oil with but the rest of the plant no they can’t throw it away because it’s a controlled substance. They can’t incinerate it because you know God forbid someone breathes the smoke and gets high so there’s disposal companies that will come and take it off their premises. We’ll take it instead and that is the material from which we end up brewing our beer.
So it’s very different from your typical beer. It’s different in so many ways. It has a savory flavor, it is a lot less sweet than a typical beer. You could think of a wine, how there’s sweet white wines and dry white wines, this is really a dry type of a beer. It has less sugar, less carbs than a normal beer, it’s lower calorie, it is gluten free, which is important, and most importantly it is authentic.
When you think about the cannabis industry it grew out of this sort of small batch craft industry by necessity because you didn’t want to get caught by the feds so you were growing in a warehouse somewhere under lock and key or maybe in your basement or your garage or whatever it is and the growers would spend a lot of time and effort toiling over how they would make the best possible plant, right?
And that’s a craft mentality. That’s authenticity and when you think about it what could be more authentic than a beer that’s actually brewed from cannabis as opposed to one brewed from barley and later infused with cannabis.
David: And give us an idea of where the company has come the past few years, since you launched the company. Still private for now, but give us an idea of the state of the company today and when and where people can buy these beverages.
Dooma: That beverage one is easy. Canada has legalized cannabis. First sales will be in October of 2018 but beverages will have to wait a little longer. So beverages will be allowed in October of 2019 or maybe before but probably not. Probably October of 2019 knowing how slow the government works on everything.
In terms of the process to start this company, it was extremely challenging. We came up with this concept, we started the company in September of 2016, we need to raise some capital, went around trying to set meetings with people, and nobody wanted to meet with us. We were here in Toronto pitching a cannabis beer company and they would say don’t you know that Canada was actually the first country in the world to legalize medical marijuana in 2001 and by that point they’d had 15 years to decide if they wanted beverages and clearly they didn’t seem to want beverages to be allowed for patients to consume because they had never legalized beverages and many thought that with the coming recreational legalization they would not allow beverages either.
But then in October of 2017 it was announced that marijuana beverages would be legal and then that same month at the end of the month the first Fortune 500 company to invest in the cannabis industry was no a pharmaceutical or a tobacco giant like everyone expected it would be but it was in fact a 45 billion dollar market cap Constellation Brands and all of sudden everyone knew that beverages were coming.
Then sort of our prospects changed tremendously. We’ve been able to raise a great amount of capital. We’ve raised 16 million Canadian dollars so far. We have purchased a capital pool corporation which was trading on the Toronto stock exchange. It’s halted trading. We’re doing a reverse merge into this capital pull corporation and our own company will be taken public following our next round. So we’re just getting ready to start the roadshow. It looks like we’ll start that in September.
We have Paradigm which is one of the top investment banks here in Canada underwriting our deal and we’re putting together a syndicate of some other banks and so we will basically raise around 30 million dollars give or take and then take the company- after that closes the company will be publicly traded on the Toronto stock exchange venture exchange.
David: Very exciting, something we’ll certainly be watching for. And speaking of Constellation, obviously the week that we’re taping this, a huge deal. Five billion dollar additional investment into canopy growth so now you have an absolute juggernaut in canopy, in constellation, so how does that impact your mindset, your strategy going forward with Province Brands when it comes to building distribution, building brands in that market that’s still right now isn’t even legal yet?
Dooma: Correct. There is no legal beverage market but right now we’ve got Molson Coors jumping in, we’ve got Constellation, makers of Corona jumping in, there’s another company- Hill Street Beverages has publicly traded here in Canada intending to make beverages. There are going to be a lot of competitors in this cannabis beer space and I think that is great because as these guys come online we can reduce our marketing budget because they’ll teach people what a cannabis beer is. We can reduce our lobbying budget and we have something that they don’t have.
They can all make a non-alcoholic beer and infuse it with a marijuana oil but if they want to brew from cannabis chances are they would need to license the technology that we have developed. It is very, very valuable. So in terms of distribution a lot of this would’ve been challenging for us to figure out if we were the first and only cannabis beverage company in Canada.
We’d have to probably buy fridges and put them in all the stores, you know? We’d have to work with distributors to get them comfortable with the idea of shipping bottles instead of very light flower or marijuana oil which doesn’t take up a lot of space. Now that we know that there will be a cannabis beverage industry a lot of the things that I was worried about a couple months ago are no longer concerns of mine.
So I think it shouldn’t be a surprise for anyone. If you think about it there’s three legal psychoactives in our world besides marijuana. You’ve got coffee, tobacco, alcohol. Two of those three are consumed only as beverages and the third no one does anymore so … everyone should’ve seen this coming but somehow no one did and we’re very fortunate to be in the right place at the right time.
David: And at The Motley Fool we’re business-focused, long term buy and hold investors so whenever we recommend or buy a stock, even though right now we can’t yet do that with Province Brands but when we do do that we typically have a minimum holding period of at least three years so we’re really looking at the long term, focusing on the underlying business.
So for business folks, investors like us what type of metrics are you watching in your business over the next three to five years? What are you watching closest to gauge the underlying health or progress of Province Brands say five years from now?
Dooma: It’s all about hectoliter capacity and what percentage of that hectoliter capacity is our product versus other beer companies or other beers that we’re brewing. So to be clear we’re putting in 175,000 hectoliter facility. That’s 60 million bottles of beer that we’ll be able to produce. That’s a lot of beer. Now there’s not gonna be that much demand for Province Brands products right off the bat and what’s happened is since we’ve announced these plans we’ve had licensed producers growing cannabis.
They might have their marijuana license but they don’t have a brewery. We’ve had brewers who have the brewery but they don’t have the marijuana license. Both coming to us, asking us to contract brew for them, so we want to be fully functional with that brewery. We want to have every ounce of capacity operating with our brewery and the metric that we’ll judge over the future is first of all, can we deliver on that? Can we get all 175,000 hectoliters from day one or how long does it take for us to scale up to that? That’s very important.
And then secondly, once we are at a hundred percent capacity for the brewery, how much of that is our beer? Because our margin is much higher on our beer than on other people’s beer that we contract before them. So as more and more of that becomes our beer and we tell other people, sorry we can’t help you, gotta go build your own brewery, that means we’re making a lot more money.
So we’re focused on hectoliter capacity and we’re also focused on distribution location. We’re a Canadian company, we’re gonna be in every province and territory in Canada before too long but we’ve also applied for a license in Greece and we’re excited to hopefully get that license and penetrate the European market as well, and maybe some day if the rules change we’ll get into the United States also.
David: Awesome. Well, I have a flight to catch soon. I could talk to you much longer and hopefully this is a first of many conversations, certainly look forward to following this story with The Motley Fool and Marijuana Mavericks so Dooma Wendschuh, co-founder and CEO of Province Brands. Thanks so much, we’ll talk again soon.
Dooma: Thank you so much. It’s been an honor.