How Pure Sunfarms is navigating marijuana sector ‘reckoning’: Q&A with CEO Mandesh Dosanjh

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Pure Sunfarms knew the time would come when the British Columbia-based producer would need to expand cultivation at its massive marijuana greenhouse, even as some competitors were closing and selling facilities for pennies on the dollar.

In an interview with MJBizDaily, CEO Mandesh Dosanjh explained why that time is now.

“Our foundations are strong. We’re profitable. So our business model works. And part of that thesis was always that we can own a bigger share of cultivation in Canada,” he said.

“And we’re unleashing that plan.”

Dosanjh said a “reckoning” is taking hold in the broader Canadian market, with some producers closing their doors, others watching their market share shrink and at least one choosing to exit the cannabis industry altogether.

In the interview, Dosanjh also talked about how his vision differs from those of some of his competitors.

For instance, Pure Sunfarms is focused on where it believes money can be made now, prompting its entry into the European market via the Netherlands.

“To us, it’s about meaningful deals and meaningful revenue and not chasing something that’s fairy dust,” he said.

MJBizDaily also spoke with Dosanjh about price commoditization and the purchase of Quebec-based Rose Life Sciences by Pure Sunfarms’ parent, Village Farms International.

Pure Sunfarms’ success in flower is not crossing into other categories yet. What are you doing to make up ground in vapes and pre-rolls?

Flower will always be the largest part of the market. We’ve seen that in mature spaces.

I think the next-biggest opportunity for us in flower is pre-rolls.

We’ve never been the first. We’re always there to be the best. And so we wanted to perfect and focus on flower and then get into other segments.

We’ve seen a trajectory there. We cannot keep that product in stock, (so) we’re building out capability in scale.

My view on 2.0 is that you’re going to see massive price commoditization.

The 2.0 space is nowhere near as profitable as anybody thought it would be. And licensed producers are just continuing to try and buy market share.

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(Vapes) is a segment we want to continue to be in, will continue to optimize. But I’m not very bullish on that as a segment right now, because of the commoditization.

But I am pleased with our performance. And I think we have more to offer and will continue to win and will continue to do it profitably.

And doing it profitably is at the core of what we do, not necessarily what everyone else does.

Why did your parent company buy Rose Life Sciences and not one of the other dozens of licensed producers in Quebec?

The Rose business is more than just an asset. It is a way of being in Quebec, and we were happy to partner with them.

One of the most important things is the people. The CEO, the founders, the team that is there are incredible. And we’re going to keep all of that intact.

This is about taking a Quebec business and backing it with the Pure Sunfarms and Village Farms horsepower to grow it in Quebec.

It was multifaceted around the performance, the people and the positioning. So it was kind of a trifecta, versus just going in and buying an asset and barging our way into Quebec.

That’s not how you do it. That’s not how you win over that culture. It’s not how you win over that province. It’s not how you do things the right way.

And we want to do things the right way for the long term.

Your rival mass-producers are losing market share, whereas yours is steady, if falling only slightly. Why?

One thing I always say is market share doesn’t show up in your P&L (profit and loss statement).

So, for us, it’s about having really solid business foundations, being profitable and selling inventory, because cannabis is a fresh product.

And you’re right. In some markets, we’ve seen flat growth, specifically in Alberta. In other markets, we have seen growth in either our flower base products or some of our other products.

I think it comes down to our business foundations, our fundamentals, the fact that we’ve gone forth with a very specific and targeted and focused business strategy around everyday premium (that) the customer resonates with.

We really looked at the consumer and worked backwards.

We looked at the cannabis consumer and said, “What do they value? What do they appreciate? What are they going to look for in a product that they buy, regardless of where they’re buying?” and “How are they consuming?”

So, really creating our brand for the everyday premium customer, which is the mass part of the market, and really trying to do that while (balancing) pricing and quality, always in stock, and just really trying to do one thing very, very well, and not get too distracted.

I think all of that allows us to thrive, while others are whittling away.

Few of your largest rivals have any organic growth in Canada at all. What’s key to growing your sales organically?

Building a really solid brand, giving reasons to believe and winning over budtenders through our products, not through gimmicks, not through marketing hype.

It’s getting into the stores and winning over consumers.

It’s interesting to me that your competitors have spent so much money on M&A, billions of dollars, but they’ve lost market share. What are they doing wrong?

When you put an acquisition on top of a crumbling house with poor foundations, don’t be surprised when it collapses.

Integration – and we’re about to go through this with Rose – it’s very important to get it right in (the first) 90 days.

Mesh the cultures, understand what your focus will be and how you’re going to go to market and what you’re going to do with that.

And if you’re a massive organization that never seems to have focus, acquisitions are always going to exasperate the flaws in your business model.

I think that’s what you’re seeing. You’re seeing flawed businesses trying to expand through acquisition, because their fundamentals are broken.

It’s no surprise to me or my board that it’s not working.

You hired the most people last year of any licensed producer. Is there a risk you’re going too fast?

I don’t believe so at all. We’re very prudent in everything we do.

We have a strong foundation, and we match our growth to our revenue projections, making sure we expand at the right scale.

How have your operations and people been affected by the floods in British Columbia?

First and foremost, our people are safe, our people are working. And we’re going to continue to help the province in any way we can.

None of our day-to-day operations, the greenhouses, none of that’s been impacted.

There’s no water issues, other than some local roads here and there. All the operations are intact.

We have some employees that have been impacted that cannot make their way to work.

On the shipping side, I think that’s where the entire Canadian supply chain is going to feel this. This is not solely to cannabis.

My heart goes out to those impacted, the people who have lost ones (and) lost their businesses. It’s unbelievably horrible.

This interview was edited for length and clarity.

Matt Lamers can be reached at matt.lamers@mjbizdaily.com.