Large Canadian cannabis producers are turning to small-batch cultivators to tap into a growing consumer appetite for higher-quality “premium” marijuana products.
To that end, some large licensed producers have entered into partnerships with craft companies. Others have bought them outright, and some are buying craft cannabis in the wholesale market for resale at the retail level.
The rise of small-batch production comes after mass-producers spent years and billions of dollars cultivating cannabis, the vast majority of which was ultimately unsaleable. An MJBizDaily analysis found that Canadian LPs destroyed more cannabis than they managed to sell in legal channels from 2018 through 2020.
David Kideckel, head of strategy and capital markets for Winnipeg, Manitoba-based Delta 9 Cannabis, said loyalty is one of the key drivers.
“With value brands, there really is no loyalty (among consumers). When it comes to craft brands, or premium brands, consumers typically become loyal to that brand, assuming there is more consistent quality every time,” he said in a phone interview.
Delta 9 has 13 craft partners, and the Cypress Craft brand is the bestselling among them.
Experts see acquisitions of craft growers picking up in the coming months – the latest being The Valens Co.’s planned acquisition of craft firm Citizen Stash Cannabis Corp. for 54.3 million Canadian dollars ($42 million).
“We could see some acquisitions in this area, premium/craft companies,” Kideckel said, “where LPs are looking to take them for a test ride: ‘Are these brands selling, and if so, can we outright acquire them and make them part of the overall LP strategy.’”
The Ontario Cannabis Store (OCS), the largest marijuana wholesaler in the world, has picked up on the trend.
In its latest annual data report, the OCS noted that craft cannabis has successfully emerged in the market, “encouraging the rest of the industry to build brands based on fresh products and farm-to-consumer artisanal practices.”
“Since the launch of the OCS craft designation, it is clear that consumers have responded positively to craft and small-batch products,” spokesman Daffyd Roderick said in a statement.
“In addition to maximizing product diversity in OCS’ dried flower and pre-roll assortment, craft cannabis helps to draw legacy consumers to the legal market by offering more products that reflect artisanal legacy production methods.”
For George Scorsis, interim CEO of Entourage Health Corp., a renewed focus on small-batch production is part of a broader, industrywide focus on quality.
In July, Entourage (formerly WeedMD) announced an agreement to acquire craft cultivator CannTx Life Sciences for CA$17.5 million in one of the biggest craft acquisitions deals to date.
“It’s not about how much biomass you can produce. This is the first time we’ve seen in the Canadian market that both the consumer and the capital markets have converged to ask for exactly the same thing. It’s about quality,” Scorsis said in a phone interview.
So how does a larger LP buy a craft producer without losing what made it successful in the first place?
“You need to maintain the components that make it special and unique,” Scorsis said.
“And you should actually not look at yourself as the acquirer. You should look at yourself as someone who has the opportunity to integrate new and important qualities into your business.”
He said Entourage will ultimately be responsible for the cultivation within Entourage’s facility, and the company will maintain cultivation at the CannTx facility.
“They know how to do it better,” he said.
One common way large, licensed producers are leveraging small-batch production is through partnerships with craft producers – usually micro-producers.
London, Ontario-based Indiva Limited launched Artisan Batch last year with an eye on the premium market.
Cannabis for Artisan Batch, which features cultivars from craft and micro-growers, is sourced through Indiva’s partnership with BC Craft Supply Co.
The company has worked with roughly a half-dozen craft growers.
Though Indiva is essentially an edibles company, CEO Niel Marotta believes there’s a big opportunity in craft flower.
What is Marotta looking for when assessing craft producers?
“It starts with passion. We want growers who eat, sleep and breathe this stuff and who take the final product seriously,” he said.
“That’s not impossible to find, but it’s not as easy as it looks, either.”
Marotta is also looking for a great facility as well as products with exceptional terpene profiles, potency and freshness.
“We don’t want it to sit around in the vault for months and months – that’s terrible,” he said.
“One of the keys to Artisan Batch is promoting the growers themselves,” he said.
“I think what’s a little different about Artisan Batch is we’re saying we didn’t grow this. Here’s how great this grower is. And we’re proud to bring this product to market versus a bigger LP that might take it and brand it as its own.”
Marotta added: “I hope that, in time, the THC arms race will crest and roll back, and people will say, ‘There’s more to good cannabis than the THC percentage.’”
Noting the rising tide of craft cannabis, Ontario-based mass-producer Canopy Growth recently closed its acquisition of Supreme Cannabis Co.
The deal – initially valued at roughly CA$435 million – brought the 7 Acres Craft Collective under Canopy’s wing.
“Craft as a whole is growing, and I think we’ve seen that in the Canadian market over the past year,” said Kelly Olsen, vice president of Canopy’s flower business.
“Our main value drivers in the acquisition were the 7 Acres brands, inclusive of 7 Acres and 7 Acres Craft Collective, along with the Kincardine facility, where they produce the dried flower products,” Olsen said.
“Obviously they’ve been putting out high-quality, very premium flower into the market and proved they can produce that at scale, which was very attractive for us.”
Another Canopy craft brand is Doja Cannabis Co., based in British Columbia’s Okanagan Valley.
In 2018, Canopy bought Hiku Brands for CA$250 million, bringing retailer Tokyo Smoke and Doja into the fold.
“Overarchingly, craft is important to us going forward, and how that comes to life will be through the 7 Acres Craft Collective brands and Doja brands,” Olsen said.
The Craft Collective growers are kept confidential at their request, a Canopy spokesperson told MJBizDaily via email, since many aspire to sell cannabis under their own brand.
The Craft Collective growers are paid the wholesale price per gram.
Canopy said it reviews samples from potential craft producer partners on a regular basis, evaluating:
- How they grow.
- Their finishing techniques.
- Who their in-house teams are.
- That they meet all the requirements from a regulatory standpoint.
“Every drop is evaluated on a lot-by-lot basis,” Olsen said. “When a lot meets our quality standards, we then add that craft producer to our partner pool.
“If a craft producer continuously produces quality flower that meets or exceeds our criteria, we will continue our relationship with that grower.”
Olsen added, “The 7 Acres Craft Collective program has proven to be a win-win for Canopy as a larger producer and smaller cultivators in terms of bringing their products to market.”
Matt Lamers is MJBizDaily’s international editor, based near Toronto. He can be reached at firstname.lastname@example.org.