As the cannabis industry finally takes off after nearly a century of prohibition, investors have neglected to ask themselves a central question. It might seem too obvious to even ask, but as you’ll see in this report, that is not the case at all. That question is, who should cannabis be marketed to?
I’m going to make the case here that the big and familiar players in the cannabis industry are all ignoring this critical question. I’m going to show you how one small and extremely undervalued ultra-premium focused cannabis firm is one of the very few answering it correctly.
Let’s start off with a little thought experiment. Imagine you lived back in the Roaring Twenties. World War I has just ended, the economy is absolutely booming, technological advancement is exploding…and if you have a shot of premium aged whisky, you are considered a criminal.
Imagine if you were involved in some way in the black market liquor trade back then. How would you be portrayed by the media and perceived by society at large? Decadent, dangerous, lawbreaking, wild, unstable, constantly drunk, deadbeat, irresponsible and reckless are a few words that come to mind.
But what if you weren’t any of these things at all? What if you were just someone who really appreciated a nice glass of barrel-aged, sophisticated, complex, aromatic single malt scotch? A socialite who enjoys the finer pleasures in life? Is there any chance you would be viewed that way by any cultural barometer if you had to associate with bootleggers to buy a bottle of whisky? Or would you just be another lawbreaking drunk?
Now fast forward to today. When you think of a cannabis user, are you picturing a deadbeat stoner, or a sophisticated connoisseur? How about when you picture a rare bottle of 21-year-old scotch made by a centuries-old distillery boasting pride in tradition and meticulousness in every step of production? What kind of person do you imagine drinking it? An irresponsible deadbeat criminal drunk, or a refined aficionado?
100 years of cannabis prohibition has warped our perceptions of what sophisticated cannabis consumption can be. Now thankfully cannabis is finally fully legal, but the old stereotypes regarding its consumers persist. A century of prohibition has had serious effects on market perceptions going forward.
In the race to supply as much cannabis as possible to a virgin market, the biggest players are making the biggest mistakes. Instead of targeting the premium connoisseur, they’re stuck in the old “hippie-stoner” paradigm and trying to convince consumers of what they should buy. Like jailbirds who’ve been on the inside for an entire century, they are having a hard time seeing the outside world for what it really is when they finally regain their freedom.
The good news though is that astute investors who recognize these mistakes can position themselves to make an absolute killing in the nascent Canadian cannabis industry.
And GTEC is recognizing them well and positioning itself to take advantage. When investors realize what this company is doing, we’re going to see a massive shift in the way cannabis is perceived and marketed across the world. Early GTEC investors are likely to see gains they never even dreamed of when the rest of the industry wakes up to the new reality.
While almost every other cannabis company is focusing on marketing its products as if cannabis prohibition is still the norm, GTEC is looking ahead and marketing to the cannabis industry as it will be in the very near future.
Simply, rather than reaching out strictly to the stoner crowd, GTEC is marketing to the connoisseurs, the aficionados, the affluent and high-cultured. The niche that doesn’t just want to sit around and “get high,” but rather have a tasteful and uplifting experience with a truly boutique brand.
We know what you may be thinking, GTEC along with many other companies claim to target the premium and ultra-premium segment of that market, but can they actually produce a product that can be considered ultra-premium? You may or may not be aware of a company called CannMart. They are an online marketplace that carries products from over 9 Licensed Producers, and roughly over 40+ SKU’s. A little over a month ago GTEC issued in a press release, that their first batch trial harvest had become the #1 selling product on CannMart. This clearly demonstrates their ability to target the high end of the market, on an first harvest.
Think about it. Does anyone really believe that the legalized cannabis industry can thrive off of strictly the old crowd of cannabis users? That may be enough to sustain the black market that enjoys huge profit margins because of the risk and illegality of the business. Quality is secondary to price and not getting caught. But once a black market is legitimized, supply explodes, prices fall, profit margins become razor-thin and companies need to compete much more seriously by innovation, niche marketing and superb quality.
Instead of trying to grow as much cannabis as possible in gigantic grow operations where product is machine-trimmed and flash dried to get it all to market as quickly and cheaply as possible, GTEC is taking the artisanal approach. Superior genetics, small batches, indoor cultivation, optimized curing and hand-trimmed cannabis is what is going to attract the higher value markets, constituencies and defend price compression.
GTEC has also built an eco-system in which they have full control of the entire value chain, through vertical integration. What this means is that they cultivate it, test it in their lab, extract it in their lab, and also own various stakes in retail dispensaries across the country, including a license in for a recreational cannabis website in which they can ship to anyone 19+ in the province of Saskatchewan. This is the only way that GTEC can truly ensure their products are handled with the utmost quality from cultivation to consumer.
Consider what’s been happening to the beer industry since the turn of the century. While mass-produced mainstream brands like Budweiser and Miller have suffered from falling market share, it’s the small-scale microbrewery artisanal brands that have been on the upswing for nearly 20 years now. This is nothing new.
The numbers tell the tale. From 1999 to 2017, the compound annual growth rate (CAGR) of the beer industry as a whole has been 2%. That same rate for craft beers has been quadruple that at 8.2%. The CAGR for craft beers is expected to keep rising to 13.7% through 2025. Anti-globalization, localism, and a desire for small-scale exclusive products has been driving this trend for nearly two decades now. Craft beer volumes have quintupled since 1999 while mainstream beer production has been relatively static.
In 2017 alone, overall US beer sales were down 1%, while craft brew sales continued to grow at a rate of 5% by volume, now reaching nearly 13% of total market share by volume. By sales it’s even more apparent what’s going on as beer drinkers continue to reject mass-produced brands in favor of higher quality local breweries. .
The affect of these trends has been enormous and can be easily seen in the stock price of the world’s biggest brewer, Anheuser Busch InBev (BUD). This nearly $200 billion monster with over 100 beer brands under its belt has stagnated for its shareholders for the past 7 years. The 2016 $100 billion merger between Anheuser Busch and SABMiller that formed this giant hasn’t done anything to stop the capital erosion. Shares have fallen by a third since the two beer behemoths merged as local artisanal beers continue to eat into the Bud Light market share.
But let’s move back to cannabis. What GTEC so astutely recognizes is that the impetus that has driven market share in the beer industry into the hands of the artisanal microbreweries and away from the mass production of the beer giants, is not at all an isolated phenomenon. Preference for localized small-scale production can also be seen in the rise of farmer’s markets around the country, specialized butcher shops and health food stores. Food giants like Kraft Heinz (KHC) and Campbell’s Soup (CPB) are all suffering just the same as Big Beer. These same trends are prevalent across industries, and they will certainly take hold in the cannabis industry as well.
Just like a good quarterback throws the football to where the receiver is going rather than to where he was, GTEC is marketing its cannabis to where the consumer is going rather than to where he has been during the bygone era of cannabis prohibition. When the industry leaders realize this, they will be left holding the bag while GTEC and those who embrace its strategy will prosper.
We are not yet at the point where cannabis connoisseurs are forming exclusive clubs and rare strains are being auctioned as collector’s items at Sotheby’s like rare bottles of Scotch whisky, but GTEC is wise enough to realize that this is exactly where the industry is headed.
Here is a taste of GTEC’s approach. The company is focusing in on developing several core brands, each tailored to a specific niche. First, for the traditional “stoner” crowd not to be overlooked, a call to the black market of the past:
BLK MKT TM A homage to the legacy of cannabis prohibition. BLK MKT TM has been designed to resonate with experienced cannabis consumers who seek high THC strains.
Second, the connoisseur’s cannabis, COGNŌSCENTE TM For the sophisticated aficionado who appreciates excellence in flavour, aroma and terpene profiles.
TENZO TM A balanced lifestyle brand, with a variety of strains and products to provide a diverse palette of desired effects to its consumer.
TREE HUGGER TM A line of organic cannabis products, earthy and approachable for the consumer who demands purity in an environmentally friendly product.
GREENTEC TM A flagship brand catering to the medical market, designed specifically to aid and support patients with various ailments that respond positively to cannabinoids. This brand has become the #1 selling product on CannMart
The appeal of GTEC is not by any means limited to its niche marketing approach or its focus on artisanal craft cannabis. All indications are that the stock is being completely ignored in favor of big-name companies focusing on impressing investors with huge production numbers and not much else.
Just consider, GTEC has successfully raised about $35 million since inception, a decent though modest sum consistent with its targeted vision and purpose. Its market cap meanwhile is little over $50 million. Meaning, this stock has not been promoted or noticed at all, and there is zero hype around it. The time to get in to any stock is before the crowd recognizes what’s happening. In GTEC’s case, not only do investors not understand how critical the artisanal approach will be for the industry as a whole, preferring to see big production numbers and focusing strictly on multiplying numbers together. GTEC is flying completely under the radar, so when investors do start to take notice of the success of strategy, the move upwards is likely to take place very quickly.
At current rate of expansion, GTEC expects to hit CAD $75 million in top line revenue by 2020 and EBITDA of about CAD $40 million with a current enterprise value of about CAD $75 million. That puts shares at about 1.9x EBITDA while most firms in the industry trade at 15x or more.
None of this takes into account what makes the company stand out against every other cannabis firm in the business and it also does not incorporate any revenue from converting flower into oils, edibles, or beverages and also does not incorporate any revenue from their retail stores, which could potentially be 30+ locations.
Investors in pot stocks should ask themselves these simple questions. Do you really think the cannabis market will stay confined to where it has been during the unnatural era of prohibition, when markets were harassed, suppressed, and kept underground? Or is there more here than just stoners coming out of hiding?
Is the cannabis industry really just a competition between who can produce the most product and get it out as quickly and cheaply as possible, or is there more to it than that?
Is the cannabis industry somehow unique in that it will escape what has happened to beer, farmer’s markets, health food stores and the general preference for localized, small scale production over the last 20 years?
In the frenzy to dominate as legalization has taken hold, pot stock investors have lost sight of trends that have been in place for decades across industries, mesmerized by production alone without a coherent marketing vision.
The cannabis market is about to be flooded with product, and things are about to get extremely competitive. Only niche marketing, strong brand loyalty and a quality product can give any new company a chance to thrive. The question is not who can produce the most, but who can produce the best, market the most efficiently, and find brand new constituencies that will coalesce around the highest quality niche product that speaks to them the most.
Beer isn’t just about getting drunk. Food isn’t just about getting full. Cannabis isn’t just about getting stoned. After nearly a century of marijuana prohibition, it is high time to realize this simple truth. The true market is being unleashed. And almost no company is prepared for what’s about to happen.