Our Series A Investor Round opened on Oct.28.2019
An opportunity to partner in the creation of a unique international network of genuine AAAA craft cannabis producers.
Anchored in Nova Scotia, The Headland network will be “Globally Local™” and created to consistently deliver the “Consummate Cannabis Experience™” to discriminating clientele.
To create an international network of exceptional, regional craft cannabis producers located in Canada, the US, and the EU that use their intimate knowledge of local markets to design bespoke baskets of Connoisseur Quality Cannabis™ products that satisfy the demands of discriminating clientele.
The Headland will be a dependable supplier of Connoisseur Quality Cannabis™ that consistently delivers the Consummate Cannabis Experience.™
The following is a short update on The Headland’s Series A Investor Round.
Negative press and upheaval in the public cannabis market have caused investor confusion. It is asserted that that the legal industry suffers from amongst other things: (i) a lack of differentiation; (ii) oversupply; (iii) declining wholesale prices; (iv) lack of competitiveness with the black market due to the cost of compliance and taxation; and (v) the possibility that some public cannabis companies are at risk of being delisted.
The financial market issues are well illustrated by the results reported by the Canadian Marijuana Index, which is comprised of the 20 largest publicly-traded Canadian cannabis companies. For the 52-weeks ending November 2019, the Index has seen its value drop from a 52-week high of over $725 in May to a low in November of below $196, a 73% loss in value.
In these circumstances, the ability of producers to raise funding has been made more difficult. While we believe that much of the recent reporting has been inaccurate, possibly ill-informed, it will be difficult to convince prospective investors that these negative reports and outcomes are not relevant to the premium segments of the industry, particularly in the face of the capital losses investors have suffered over the past year and the performance milestones missed by industry players.
Is the Canadian cannabis market undifferentiated? The Headland believes that there is clear differentiation across the industry based on quality (AAAA, AAA, AA, A), and that the supply, demand, and pricing dynamics are significantly different in each segment. Industry leaders have reported supply shortages of premium dried flower, of which AAAA flower is the highest quality. Recognition of this by the investor community would be a significant contributor to The Headland achieving a successful funding round as The Headland would be viewed as competing in an underserved market competing on quality.
Is there oversupply in the market? The Headland believes the actual situation is two-fold: a distribution bottleneck and capacity built to serve the non-flower markets. First, 21 million people live in Ontario and Quebec (61% of Canada); only 50 physical stores serve them (ratio ≈ 420,000 People Per Store ("PPS") -vs- 10,000 PPS suggested (shortage ≈ 2,050 stores.) In Nova Scotia, with 5 outlets, the current ratio ≈ 185,000 PPS (shortage ≈ 85 stores.) There has been very little consumer interest in online channels, e.g., only 2% of NS demand generated online (vs- 40% to 60% expected.) Despite the shortage of retail access points and the reported 60% of consumers that StatsCan report continue to use the black market, the compound average monthly growth in recreational cannabis sales in Canada has been 11.9%. The distribution bottleneck forces consumers to the black market and inventory growth at the producer and retail levels, both of which should abate when provinces roll-out the appropriate level of physical retail outlets. Second, producers have built capacity and inventory in preparation for the advent of Cannabis 2.0’s new product forms, which is expected to generate over $4 billion in sales.
Are wholesale prices declining? It is true that Canadian wholesale prices are declining in the A and AA segments of the market, the segments that offer lower quality product, but this has not occurred in the premium (AAA and AAAA) segments, where the few producers that offer high quality product have seen stable pricing in the $15 to $25 range, and above. Moreover, looking to more mature markets such as Colorado, Oregon and Washington States, wholesale cannabis prices have been rising, especially in the premium market segments.
Is the cost of compliance and taxation rendering the legal market uncompetitive with the black market? Government taxation and retail mark-up are costs borne by the legal consumer that are not included in black market pricing, as are the costs of meeting compliance requirements. The pricing differential is attributed to only 28% of Canadian consumers relying exclusively on the legal market (vs- the 63% expected.) The Headland’s target market is more concerned with quality, potency and delivery of intended effect than price. Furthermore, they prefer legal shopping channels when accessing their product of choice over the illegal alternative that they have had to rely on through the first year of legalization.
Is there a possibility that some public cannabis companies are at risk of being delisted? That is beyond our expertise, but delisting would reduce the liquidity of the shareholders of such firms, which would lead to a lower share and enterprise value. The Headland does not believe that an IPO is the most likely form of an exit event for its investors; further, any exit event is several years in the future by which time we expect the current market turbulence will have moderated.
We are working hard to overcome the consequential obstacles that we are facing to achieve the objectives of our Series A funding round.