Cannex Capital Holdings Inc (CSE:CNNX) (OTCMKTS:ARRXF) Director and CEO Anthony Dutton talks to James about their recent listing in the public markets. Cannex acquired the largest cannabis player in Washington State which did over 3 million in sales for the month of January 2018 alone. The Assets are a combination of Northwest Cannabis Solutions, which is the largest cannabis producer in the state and BrightLeaf Development LLC which holds intellectual property including brands, as well as real estate assets and supply agreements with Northwest Cannabis Solutions. Anthony lays out the goals of Cannex which is to become leaders in other US states as well leveraging their processing know-how to achieve similar success in other areas.

TRANSCRIPT:

James West: Anthony, thanks for joining me today.

Anthony Dutton: It’s great to be here again.

James West: Anthony, tell me about Cannex. This is a new LP listed in Canada that I’ve yet to hear anything about.

Anthony Dutton: So Cannex is focused primarily on the US market; probably 60 percent of our time would be focused in the US, 20 percent Canada, 20 percent overseas. We just did an RTO financing, our first day of trading was yesterday. We started off with a $25 million offering led by Beacon Securities, that upsides it to 48; we had very, very strong demand. And as a part of the transaction, we acquired the assets of the largest cultivator-processor in Washington State.

So the thesis here is to take the operating platform in Washington that already exists, that has exceptionally strong brands, very large cultivation facilities, and expand into other US jurisdictions. We’re looking primarily at the Western US initially, in Nevada, Arizona, California. We want to be a coast-to-coast, multi-state, branded cannabis company.

James West: Not at all ambitious.

Anthony Dutton: Not at all.

James West: So how much cannabis do you currently produce now in Washington?

Anthony Dutton: So last year they produced just over 7,500 kg, which if they were a Canadian company, would put them in number two position. They had the number one and the number two flower brands in the state; they also had seven of the top 10 edibles brands in the state. In Washington, you cannot be vertically integrated, so they are a cultivator-processor only; they sell wholesale to the dispensaries. They currently service about 80 percent of the dispensaries in this state, and there’s about 520 in Washington.

So they are by far and above the most dominant player there. Their revenues for January of this year were $3.4 million for the month; the next largest company was 2.2, so they’re 50 percent larger than the number two player.

James West: Okay. What’s your average sale price per gram?

Anthony Dutton: At a wholesale level, it’s between $3.00, $3.50 USD in Washington State.

James West: Okay, and what’s your all-in cost per gram at this point?

Anthony Dutton: That’s a great question. These guys have phenomenal yields; they’re totally focused on that. Their grams per square foot yield are somewhere between 450 to 500 grams a square foot, and their cost is about $0.75 all-in. That’s pretty phenomenal.

James West: Yeah, sure is. Is it profitable now?

Anthony Dutton: Yes, it is profitable.

James West: Okay, great, a profitable marijuana company!

Anthony Dutton: I know, that really differentiates us, and I think that’s what made the financing so successful, James, was that we walked and spoke to a lot of investors and they said exactly what you said: that’s unusual for a cannabis company. And these guys have been around for four years. They’ve been kind of off the radar as far as the Canadian capital markets go, and now they wanted to leverage that expertise, they needed access to capital to grow, and the Canadian capital markets were the best source for capital, the lowest cost of capital.

James West: Sure. Washington State, when they first went legal, they made a bit of a dog’s breakfast of the whole regime and caused a lot of the companies to go out of business. Has that all been rectified?

Anthony Dutton: Not completely, which is a part of the opportunity for us, to be quite frank with you. There’s I think 1,100 licenses in the state, which is insane when you consider there’s only 6 million people in Washington. So we’re seeing a lot of failures; companies raised a couple of million dollars, realized that growing cannabis was a lot more difficult than they realized, and they are one by one kind of folding, which gives us greater opportunity to increase our market share. We currently have about 10 percent of the Washington State wholesale market, and we want to move that up into the 20s over the next couple of years.

James West: Oh, that’s interesting. So I guess it’s very competitive for the sale price, thus the low wholesale price per gram.

Anthony Dutton: Well, we look at it sort of two separate markets. It’s competitive on the dried flower, but not so much on the edibles side of the market. The edibles are, you know, higher margin, more sustainable margin, very much more brand-driven. The product mix in Washington is about 70 percent dried flower, 30 percent edibles. Our product mix is 55 percent dried flower, 45 percent derivative products, we call it. So we make edibles, vapes, tinctures, sublingual, all kinds of different things. But that’s where you can really, you know, build brand equity. We’re probably the best processors in the state. You know, we produce molecular distillate, which we use to infuse all of our products. We have three industrial kitchens: one for cookies, one for chocolates, one for other kinds of candies.

So it’s a very scaled-up operation; 300 employees, 180,000 square feet of facility, 60,000 square feet of canopy, over 4,000 lights. You know, it’s a going concern.

James West: Sure. So what’s the plan for the 48 million you just raised?

Anthony Dutton: The plan is to go and start to look at similar acquisition opportunities in other key states.

James West: Oh.

Anthony Dutton: As I said, western US is right there in front of us, but we’re looking at opportunities right across coast to coast, and also in Canada. You know, we see the opportunity in Canada is to really take some of the processing expertise that these guys have developed in Washington, and leverage that into Canada. Also, Canada is a great market to export from. You can’t export from Washington because exports are federally regulated and you’ve still got that Federal-State disconnect in the US.

James West: Sure.

Anthony Dutton: So, we see that as being a big opportunity as well.

James West: Okay, great. That’s a great introduction to the company. We’re going to leave it there for now. We’re going to come out and visit you with a camera crew and we’ll follow up with you in a quarter’s time or so and see how you’re doing. Thank you for your time.

Anthony Dutton: Fantastic, okay. Thanks, James.

James West: Pleasure.