By now, investors following the legal marijuana space in Canada and the U.S. have seen the industry maturing and the robust projections for the future as legalization rolls across the continent. Medical marijuana in Canada has been legal since 2001, with a re-work implemented under Access to Cannabis for Medical Purposes Regulations (ACMPR) that was last revised in February 2017. Cushioned by a growing acceptance for legal marijuana in the U.S. and underscored by 2015 campaign promises of Prime Minister Justin Trudeau, the next truly transformation moment is coming in 2018, with a target date of July 1 to legalize recreational pot nationwide.
To that point, Deloitte estimates that the base Canadian retail market will range up to $8.7 billion on demand for 655,000 kilograms of cannabis annually.
What savvy investors notice is that there are now established companies in the cannabis industry pulling away from a bunch of “also rans.” The buds are being separated from the stems, to put it in industry terms. Leaders are commanding high valuations because of proven leadership, facilities, ability to raise capital and execute on a business model that can capture immediate market and scale as the opportunity presents.
Fact is, most of the companies that tried to jump in the space, failed because they couldn’t check these boxes.
DOJA Cannabis Company Limited (CSE:DOJA)(OTCPK:DJACF) is a relatively new public issue that has realized a rapid rise in share value because it indeed is checking those boxes. Since joining the CSE in August at 70 cents per share, the Kelowna, British Columbia-based company has been added to the CSE Composite Index and caught the attention of the investment community with its management quickly ascending the ladder as a top licensed Canadian producer under ACMPR.
Armed with a history of success in the retail space, DOJA has a little bit of a different game plan, calling itself a “Cannabis Lifestyle Brand” with strains handcrafted at its picturesque Okanagan Valley facility that sets it apart by aligning the company at the intersection of medical and recreational markets.
The company’s website even oozes the lifestyle mantra (http://www.doja.life)
A little background lends some color to the model. Founder and CEO Trent Kitsch has a C.V. full of profitable endeavors, including founding the brand SAXX Underwear in 2007 and growing it into a globally recognized brand before selling his position just eight years later. Along with his wife Ria (VP and founder of DOJA), Kitsch Wines was born in the Okanagan Valley (the “Napa of the North”), with the first vintage of single-vineyard wines produced in 2015 from which the 2015 Kitsch Wines Riesling won the two most prestigious awards in BC for its variety in 2017.
By now, you should be seeing a theme of class and quality built into Kitsch products. It’s this business-building philosophy that is being employed in the DOJA Cannabis growth model.
The DOJA ball got rolling back in 2013 with the application for a growers’ license under the then Marijuana for Medical Purposes Regulations (now the ACMPR) and milestones have steadily followed, punching all the tickets to become licensed, buying the land and a 7,100 square foot commercial building, constructing a state-of-the-art facility under ACMPR standards with a 660 kilogram annual capacity and, ultimately, DOJA’s wholly-owned subsidiary, Doja Cannabis Ltd. earning its license to cultivate on June 16, 2017. Harvesting of the first premium cannabis flowers took place at the facility in October.
DOJA has also recently purchased a 22,580 square foot warehouse that will house a two-tier LED system for its flowering rooms and include a state-of-the-art CO2 extraction equipment with over 1,500 square feet of laboratory space, an industry segment expected to grow expeditiously with legal recreational marijuana. The much larger facility is a game changer for DOJA not only because of the lab, but because it raises annual capacity to over 5,000 kilograms and allows for a wider array of strains to be grown in the extra indoor space. Strains will be curated across the full cannabis experience spectrum, from indicas to strong sativas to complex hybrids and CBD-dominant strains. The company is targeting annual direct to patient revenue of CAD$60 million from the higher grow volumes and broader offerings.
The facility location is not haphazard. Kelowna, BC is home to world-class wineries, lakes, orchards, golf courses and skiing that attracts nearly 2 million tourists every year. Leveraging these visitors, the company plans to spread its brand across the country.
The new 22,580 sq. ft. facility also has the added perk of 325 feet of highway frontage, with upwards of 60,000 passers by each day which will be used to promote the DOJA cannabis lifestyle brand.
To achieve its branding goals and meet expected demand, the inaugural DOJA Culture Café was opened in October on the busiest street in Kelowna to operate as a coffee shop (complete with accessories for branding) and cannabis information center.
Sales are looking to be just around the corner. Late in October, the company requested a pre-sales inspection from Health Canada, seeking the final approval to earn a License to Sell.
While all those developments definitely set the stage for near and long term growth for the Company, the major development came just as investors were preparing to power down for the winter holidays with the news on December 21st that DOJA and TS Brandco Holdings Inc., known as Tokyo Smoke have entered into a binding Letter of Intent ("LOI ") dated December 20, 2017, setting out the terms pursuant to which DOJA proposes to acquire all of the issued and outstanding shares in the capital of Tokyo Smoke. The Merger will create a uniquely positioned cannabis company combining a best-in-class craft cannabis producer with an award-winning lifestyle brand and retail-focused cannabis company. It is anticipated that the combined company resulting from the Merger will use the name "Hiku Brands Company Ltd." to refer to the brand house containing premium cannabis brands DOJA, Tokyo Smoke, and Van der Pop.
At the same time, DOJA also announced that it had entered into a binding agreement with Aphria Inc. (TSX:APH) (OTCQB:APHQF) pursuant to which Aphria has committed to make a CAD$10 million strategic equity investment into Hiku. Additionally, the parties have agreed on the terms of a supply agreement, to be entered into in connection with the Merger, to secure cannabis concentrate supply for Hiku's premium brand portfolio.
Upon completion of the Merger, the Company will have a robust cash position of approximately CAD$31 million, which it plans to invest in expanding its cannabis production capacity, growing its retail footprint, and adding select brands to its portfolio through highly strategic and complementary acquisitions.
For more information on that transformative merger, click here for the entire press release.
2018 milestones include being awarded a license to sell dried flower by the end of the first quarter, receiving a license to produce and license to sell in cannabis oil during the second and third quarter, while also completing the Phase 1 build-out of the new lab and expanding production capacity ahead of the legalization of recreational pot with the goal of being able to produce 5,000 kilograms annually by the end of 2018. Considering the largest Canadian cannabis producer has trailing-twelve-month sales of 5,985 kilograms, DOJA is positioned to explode onto the scene as a major player.
With a market capitalization of only CAD$271.19 million (according to QuoteMedia data) and trading at CAD$4.45 per share, DOJA is dwarfed by some peers sporting much higher valuations, but only negligibly ahead in market position, meaning that if management can continue to execute with laser-like precision, the playing field should start to equalize as things come to fruition in this new year.