Westleaf Inc. (TSX-V:WL)(OTCQB:WSLFF) announced last week it is joining forces with the company behind the popular premium cannabis brand Qwest in a merger deal, minting one of Western Canada’s largest cannabis firms.
Calgary-based Westleaf is combining with We Grow BC Ltd., a craft cannabis producer based in Creston, British Columbia. Westleaf says it will be able to leverage the well-known Qwest brand at its award-winning Prairie Records retail stores, newly operational licensed extraction lab, and soon-to-be-licensed cultivation facility.
“Strategically, we are taking and merging together the number one super premium luxury brand within cannabis and marrying it with the high quality infrastructure assets that we’ve built at Westleaf to be able to accelerate the development of the Qwest brand and effectively address the existing demand that exists for the Qwest product,” said Westleaf CEO Scott Hurd in a phone interview.
The newly formed entity will focus on utilizing We Grow’s growing expertise at Westleaf’s large-scale cultivation site in Saskatchewan, creating one of Canada’s largest craft producers, it said. The aim of both companies is to increase the annual production of Qwest’s cannabis to 9,100 kilograms in 2020 at Westleaf’s “craft-to-scale” Thunderchild facility, upon licence approval from Health Canada.
Westleaf announces merger with We Grow BC, producer of ultra-premium cannabis brand @qwestcannabis. Transaction will is expected to enable rapid growth of the Qwest brand through Westleaf production facilities and retail outlets. https://t.co/ZsBsS4xNSQ pic.twitter.com/PdFDU8KDNS
— Westleaf Inc. (@Westleaf_Inc) November 8, 2019
Westleaf knows Canadians love craft cannabis
While the black market continues to dominate the Canadian cannabis industry, one category that’s been drawing consumers to the legal side is the ultra premium, high-THC weed segment.
Hurd said owning retail gives Westleaf a full scope of the competitive landscape and at its four Prairie Records stores, We Grow BC has consistently stood out as the number one leading producer of super-premium products.
When conducting further research, Hurd said he went to over 20 dispensaries across Canada to get feedback from budtenders on what the hottest selling and highest quality products are on the market, and Qwest products were “in every single conversation” he had as being either number one or in the top three.
“We had a vision from day one at Westleaf that we wanted to target that super premium segment,” Hurd said.
According to Grow Tech Labs, a Vancouver-based firm that helps small-scale growers go legit, if just 15 per cent of B.C.’s 6,000-plus black market craft cannabis growers gained Health Canada licences it would boost sales in the legal industry by $1.5 billion a year.
B.C. has a legacy of producing high quality, small batch cannabis in a well-established black market, which is a big reason why analysts say the legal market has struggled in the province with the lowest sales per capita.
But We Grow BC and its Qwest brand is a rare Canadian cannabis company that has developed a following for quality pot that compares to the shadow industry.
Hurd said this is backed by the fact Qwest has had a hard time keeping its products on the shelves and it receives one of the highest retail prices in the Canadian recreational market at $20 a gram.
The CEO said Westleaf is excited to leverage Qwest’s skilled management and growing team and its “phenomenal portfolio of genetics” at the Thunderchild cultivation site he said will be coming online in the fourth quarter.
“It’s exactly what we would have wanted to do and it gives us a two-year head start,” Hurd said. “Premium products and premium brands will have much more defensible margins long term then, you know, commoditized cannabis products.”
Other transaction highlights
Vape pens, edibles and cannabis creams will be on legal pot store shelves across Canada mid-December and Westleaf’s large scale extraction lab just gained a federal licence just in time to start pumping those higher margin products out to the market.
Westleaf teamed up with cannabis extraction experts from Colorado-based Xabis Inc. to design the processing facility and help formulate second-generation products its says are proven sellers in more mature U.S. markets.
“We’re really excited about leveraging the high quality product that they have in our facilities and people to bring some innovative and high quality derivative products to market,” Hurd said.
The newly formed company will sell its entire suite of products at the Prairie Records stores, an award-winning retail concept that combines music with cannabis. Westleaf maintains a portfolio of over 20 premium retail locations with development permits, which it is moving forward on at three high-traffic locations across Alberta.
While the market value for many pot companies has collapsed more than 50 per cent since spring, the second phase of legalization is offering some optimism for the sector.
For Hurd it was also important to join forces with another company that has demonstrated positive adjusted EBITDA (earnings before
interest, taxes, depreciation, and amortization), which he says will help the combined entity apply a disciplined approach in the next phase of the industry.
“Look, it’s no secret that the cannabis markets have been challenging as of lately. But those companies that will succeed and be rewarded in the market are those that can execute,” Hurd said. “It will be those that can build brands that can deliver material revenue and generate EBITDA growth.”
He added while the companies are contemplating rebranding the entire organization prior to the close of the transaction, both companies established portfolio of brands will stay in tact.
Under the terms of the agreement, We Grow BC shareholders will receive 4.264 Westleaf shares for each We Grow BC share held.
The transaction is expected to close mid-December. For more details on the merger deal see Westleaf’s press release here.
Disclosure: Directors of Mugglehead own shares of Westleaf and Westleaf is an advertiser on this website.