Heritage Cannabis Holdings Corp (CNSX:CANN) (OTCMKTS:UMBBF) (FRA:2UE) Chairman Clint Sharples discusses the completion of Heritage’s buildout and licensing in Falkland, British Columbia under subsidiary PhyeinMed. Sharples addresses the need for indoor scalability to meet the needs of the Canadian retail market in 2019. Furthermore, he explains Heritage’s potential acquisition of CannaCure, a Niagara-based company with a 122,000 square foot greenhouse facility. The pair discuss Heritage’s CapEx requirements to meet Phase 2 plans for PhyeinMed and CannaCure.

Transcript

James West: Hey, welcome back to Midas Letter Live! In this segment, my guest is Clint Sharples, and he’s the Chairman of Heritage Cannabis Holdings Corp., trading on the CSE under the symbol CANN. Welcome back, Clint.

Clint Sharples: Thank you. Nice to be back here again.

James West: Yeah. So last time I talked to you was about six months ago, and you had a project in BC, and were just kind of getting going in the whole cannabis thing. Now you’re midway through a takeover of a private company that I happen to be a shareholder of, and so I’m quite familiar with, which should make this a very easy conversation. Tell me about the terms of the takeover and what your plans are in terms of bringing all of this together.

Clint Sharples: Sure. Yeah, about six months ago when we spoke, we were completing our buildout in Falkland, British Columbia, under PhyeinMed, which is a subsidiary of Heritage. And we had the plans of completing that facility, putting in our evidence package, and then getting our original license to cultivate. That all happened; in fact, we had our license awarded to us about three weeks ago, and it was in a phenomenally short period of time; it was seven weeks from evidence package being submitted to being awarded. We have a fantastic team out in British Columbia, and did a great job.

James West: Great.

Clint Sharples: In looking at that, our team that I talked about out in BC has a lot of potentials in the industry. We’re getting approached by a lot of people who are looking at partnering with us in some way, shape or form, in providing products to be able to bring to the Canadian market and other various markets. In looking at that, we needed to find a little bit more capacity. We’re building as quick as we can out in British Columbia, but at this point in time, we have a little over 15,000 square feet of total facility, and adding greenhouses; right now, four greenhouses, 40,000 square feet of greenhouses, are being added. More are being ordered, and will be brought in shortly.

However, in looking at the market and with obviously now with legalization being announced, and we have a date – not sure how quickly the market will adapt to that date, but we want to be prepared for at least to be able to be in full swing by Q1 2019, which is when we believe the actual Canadian market will be ready to start properly going retail.

So in that, we went looking for someone who had some decent scalability, had an A set-up right now, and future plans that really showed that they had the blue sky potential. CannaCure came to our attention via a consultant we’re working with, who we had hired to go and find someone that met those criteria, and after meeting the people – great group of people – and seeing their facility, wonderful state of the art facility down in the Niagara Region. Not sure when the last time you were able to tour it was, but they’ve done a fantastic job with building their first 24,000 square feet inside a 122,000 square foot facility.

So that kind of scalability on an indoor grow was very exciting to us, but in addition, they have an option to acquire over 3 million square feet of existing greenhouse, which is currently doing produce production. Very interesting to us, as there’s current cash flow in that business, current profits, and could be segregated off and you can grow cannabis or hemp at a certain scale depending on what you wanted to do and how you wanted to introduce it.

James West: Sure, yeah. That greenhouse I’ve been to, actually, a few times, because I was kind of trying to help locate a partner for them as well. The thing that attracted me most about it was the idea that you could, for zero CapEx investment, you could immediately crank up 30 acres under poly and grow a not perhaps ultra-premium flower, but you could certainly grow a lot of cannabis in a greenhouse scenario, and you could do so with no extra lighting, with a minimum investment in HVAC. So I’m excited to see that this is moving forward.

Clint Sharples: Yeah, it’s a world-class facility, no doubt, and not only that, there’s a world class team of growers there, too.

James West: Yeah. What’s the – are you conversant with the economics of the existing greenhouse operation? How much are they producing a year?

Clint Sharples: Yeah. On the produce side?

James West: Yeah.

Clint Sharples: Yeah, we’ve had an opportunity to review their financials. Got an NDA, can’t talk about it, they’re a private company, but it’s an impressive outfit. They know what they’re doing in growing, they know what they’re doing in selling the products they have right now, and they seem to be pretty anxious to get going into this business.

James West: Right. So then, does that mean the greenhouse operation in Leamington would be activated next year if you were to complete the acquisition of CannaCure?

Clint Sharples: We have a little bit of time to figure that out. Right now, with the way that the product, when the product gets grown down in Leamington, it would likely be for extraction material. That’s fantastic to us, if we get into the export of some oils and extraction materials. However, a lot of that needs to be figured out with Health Canada. We are excited to join the rest of the industry with edibles, with capsules, with anything that will be eventually brought forward by Health Canada and legalized, as what you’ve seen in the United States: moving from the dried flower market to a largely edible market has been the movement for the entire dollars and cents.

James West: Sure. Okay, so you’ve got your license now in Falkland; the license with CannaCure is forthcoming at some point, I’m assuming?

Clint Sharples: We’re hoping so, yeah. Health Canada has their evidence package and has reviewed it, so we’re getting there.

James West: Great. So then I guess you’re going to start supplying the market from your facility in Falkland?

Clint Sharples: Correct.

James West: And when do you expect to actually be able to bring product to market from there?

Clint Sharples: We’ll be completed our first grow by the end of this calendar year, so early into Q1; obviously with PhyeinMed having the sales ability via the Canopy Growth program, they’ve been fantastic with us. They’re good people to deal with, and we’re very happy to be part of that, particularly given the slow onset of retail outlets in all the provinces. So you’re still looking at primarily online ordering and courier or mail delivery, so we’re happy to be a part of that Canopy process. And we’re looking at doing a controlled build. There’s not going to be any try to blow this whole thing up and be everything to everybody overnight; that’s a recipe for failure. I’ve run businesses before, I’ve built management teams, and we’ve had steady growth that delivers profits, and we’re not looking at doing anything differently.

James West: Interesting. The CapEx requirement to realize all of your near-term goals: how much do you need, and how much do you have now?

Clint Sharples: Well, it kind of splits it into needs and wants right now. So on the needs side, both PhyeinMed and CannaCure have completed their Phase 1 build. A few little things here and there to finish off, but nothing major. PhyeinMed is fully into their Phase 2 expansion with the greenhouses; we need to fund some greenhouses, so there’ll be a few million dollars requirement there. CannaCure has a Phase 2 budget – their Phase 2 is split into two, so there’s a Phase 2 A and a B, and to get moving on the A would be about a $5 million build.

CannaCure will review their Phase 2 plans, given an overlap now with PhyeinMed. We’ll figure out where is the best utilization of capital. It might be more on the extraction side than on the grow side, but that’ll be something that our team, who knows way more about this than I do, they’ll dive into that. Between the cannabis and PhyeinMed teams, they’ll find out a good solution for that.

James West: Sure. So are the investment banks, at this point, open to financing operations at your stage of development at this point in the cannabis space?

Clint Sharples: Sure, they seem to be. We’ve had early discussions with them. We’re very recent in announcing this, very recent in announcing our license. So we’ve had some conversations this week and more scheduled for next week, where we’ll be choosing our partner or partners to help us get to our financing goal.

James West: Okay, well, that’s a great update, Clint. We’re going to leave it there for now; we’re going to come back to you as things develop. Thank you very much for joining me today.

Clint Sharples: Thanks for having me again.

More Great Cannabis Content