Hiku Brands Company Ltd ((CNSX:HIKU) ((OTCMKTS:DJACF) ((FRA:D98) CEO Alan Gertner talks about how important branding is to the near future of the cannabis sector. Hiku owns 4 brands; the 2 most recognizable – Doja licensed producer, Tokyo Smoke which is a brick and mortar retail brand. Their retail stores saw almost double the traffic as the total number of ACMPR patients (220-250k). Alan argues that the power of retail branding so far has been drastically underestimated in the cannabis space. Hiku has been able to interact with customers on a retail level for the past 3 years which is something they believe is a huge advantage over any other licensed producer.

TRANSCRIPT:

James West: Alan, thanks for joining me today.

Alan Gertner: Thank you for having me.

James West: Alan, Hiku is a brand company in the cannabis space. Tell me about your business model.

Alan Gertner: Yeah, so Hiku is a holding company; it owns a number of brands, actually it owns four brands today. So Hiku owns a licensed producer, Doja; it’s a public company, traded on the CSC under the ticker HIKU, and it owns four brands: Doja, a licensed producer, which by the end of the year will be producing 5,000 kilos of top quality craft cannabis in British Columbia; Tokyo Smoke, a more retail-focused brand, a brand focused on urban professionals; Van der Pop, female-focused, focused on women and self-care; and Maitri, focused on the Quebecois market.

Ultimately, we think, cannabis is a consumer product, and if you believe in that thesis, it starts to become obvious that the keys to selling cannabis to consumers are retail and brands.

James West: I couldn’t agree with you more, and it’s refreshing to see somebody that’s actually thinking beyond the idea of scale and scope and all of that. So brands are interesting. Now, in the medical regime that currently dominates the use of cannabis in Canada, brands are not that visible outside of, you know, they basically reflect the names of the LPs who grew them.

Alan Gertner: Right.

James West: But in the recreational space, I can see where brands become infinitely more important. And so how do you see the limitations on advertising that have been imposed on the medical space since ACMPR took effect? How do you see that playing out in the rollout of recreational rules?

Alan Gertner: Yeah, great question. One, I do truly believe we’re ahead of the curve, and I want to give my father credit for that. He’s on our Board, he’s been fundamental to our business since Day One, and he’s been in the legal cannabis space for 20 years. He co-founded the company called Cannasat, which owned the share of Prairie Plant Systems, at the time the first and only licensed producer in the country. They were the first public medical cannabis company in Canada, so he has long been stumping this narrative around medical cannabis. And it allowed us to see farther ahead, to recognize the shortfalls of today, which is that we’re not recognizing this is ultimately a consumer product.

And we think a lot about the regulations that are coming. But what we recognize is that no matter how strict those regulations are, it’s a level playing field. The amount of ground gain that we have played today far surpasses any other licensed producer. I’ll give you a little example: there’s around 220,000, 250,000 patients in the ACMPR today; our stores last year saw almost twice as many people as that. So we have already built a stronger brand with a bigger group than any other licensed producer.

James West: So your stores, you mean Tokyo Smoke?

Alan Gertner: So we have Tokyo Smoke stores and Doja stores today.

James West: Okay, so they’re separate?

Alan Gertner: Correct, they’re different brands that talk to different audiences.

James West: Yeah, okay. I’ve been to the Tokyo Smoke shops – you’ve got two in Toronto now.

Alan Gertner: We’ve actually got five in Toronto.

James West: Oh, do you have five? Okay, wow, you’re moving quickly.

Alan Gertner: You have three to get to!

James West: I do, apparently. In fact, I’ve got my most favourite rolling papers are the Tokyo Smoke ones I got on my last visit.

Alan Gertner: Great, I’m happy to hear that!

James West: But so, so what is the strategy there? I mean, you can’t sell marijuana in stores now, yet you’ve created a branded consumer storefront that attracts upwards of half a million people a year.

Alan Gertner: Yeah.

James West: So how do you – what’s the value proposition there?

Alan Gertner: Yeah, so there’s two concepts at work here: one is that we have built a full-scale retail infrastructure. We’re the only licensed producer that can say that. And if you believe that retail is an important part of ultimately selling cannabis, I believe in our ability to stand up dispensaries in provinces where they are legal. I believe in that more than I might believe in another licensed producer who currently doesn’t have any retail or any retail capacity. So it allowed us to build that expertise over three years.

The second key tenet is, it allows us to touch and educate consumers. Our stores are ultimately experience centres where you can walk in, get a feel for our brands, and start to understand a little bit more about the world of adult use cannabis. If we can play only the smallest role in helping Canadians make informed, thoughtful choices about their cannabis use, that would be an incredible success.

James West: So just for the edification of the audience, this is far more than just the next level of head shop, for example?

Alan Gertner: For sure. We think these stores are our opportunity to really touch and interact with consumers. Data in the cannabis space, in terms of adult use, is hard, right? It’s still historically been hard to call up a Canadian and ask them what their behaviour is going to be like in a market that’s currently illegal. But in our stores we can interact with consumers one to one. We can ask them, and learn from them, and hopefully teach them a bit about the marketplace as well.

James West: Hmm. So in your experience conversing with would-be recreational users, do you anticipate based on that experience, a broad uptake of legal recreational cannabis in lieu of, you know, most recreational cannabis users in Canada have been sourcing cannabis from non-legal sources for most of their adult lives. So one of the great sort of conundrums that I consider is, I’m wondering, to what degree are people willing to abandon those relationships that might be decades-old, in favour of a new corporatized, streamlined, sort of sterilized environment? I mean obviously, with the high design profile and high design ethos that you guys bring to the table, that’s going to appeal to a certain demographic. But an entire different demographic, call it The Beer Store demographic, might feel intimidated by such a place.

Alan Gertner: It’s a good point. So, let me address two different thoughts there. One, I think that the greatest sin we could commit as an organization is making cannabis less accessible. In fact, I think we’re very accessibility-forward, and we are very focused on helping people understand the coming legalization of cannabis, and we try hard at that. So I’d like to think that our spaces are actually not intimidating, but in fact a warm space for somebody to come and learn. But I appreciate the feedback.

On the sort of stale corporate environment that’s coming, remember that every province has a different plan and a different rollout strategy. Somewhere like Manitoba, Manitoba has picked four companies in the country that they will allow to open privatized retail. Doja, Tokyo Smoke, Hiku is one of those companies. So we have the opportunity in Manitoba to capture one-quarter of the entire Manitoban market, that’s a meaningful market of cannabis users, and design from end to end, from growing to delivering cannabis to consumers, a unified, thoughtful experience.

I believe in Manitoba, our dispensaries will be as good, if not better, than any other offering in the world.

James West: Sure. So the provincial differentiation at this point, I mean, Ontario is a perfect example: the current government is saying that it’s going to be LCBO stars, which is obviously going to throttle the availability to LPs to deliver. I mean, there’s only going to be a few of them, probably. The leader of –

Alan Gertner: So you think that there will only be a few LPs that will be able to deliver to the product calls of the OCS?

James West: Well, that’s been the experience so far; there’s only been a few announcements.

Alan Gertner: Right.

James West: The opposition party leader has expressed a willingness to, you know, throw that out the window and privatize distribution. So I mean, my point being is that it’s even based on what people are saying now, could be very different from what we see down the road. But from where you guys sit now, which provinces are not sort of constricting the distribution to government-sponsored agencies?

Alan Gertner: Which provinces are not – so, which provinces are allowing privatized retail?

James West: Yeah.

Alan Gertner: So, BC, Alberta, Saskatchewan, Manitoba, Newfoundland, are all provinces today that are allowing some form of privatized retail and provinces we’re extremely excited about. But even in an Ontario, by having five stores in Toronto, by building a meaningful community and working hard to develop our brand and engage customers with our many brands, our many different demographics, I feel confident that a consumer is going to walk into the legal cannabis store in Ontario, in whatever form it takes, and we will be their trusted partner. We will still be top of mind, and we will have a presence in those stores.

James West: Well, I’m looking forward to my next visit. Alan, let’s leave it there for now. We’ll come back to you in a quarter’s time or so and see how you’re doing. Thanks so much for coming in today.

Alan Gertner: Thanks for having me.