Wayland Group (WAYL.CN – MRRCF) can produce cannabis at $0.05 a gram in South American and sells cannabis for up to $16 in some European markets. How do they do it? With a simple, but powerful business strategy. Mentioned in today’s commentary includes: Canopy Growth Corporation (NYSE:CGC) (TSX:WEED.TO), Cronos Group (NASDAQ:CRON) (TSX:CRON.TO), Aurora Cannabis (NYSE:ACB) (TSX:ACB.TO), Emblem Corp. (OTC:EMMBF) (TSX.V: EMC), THC Biomed International (OTC:THCBF) (CNSX:THC.CN).
Wayland focuses on the lowest cost production methods. Produce product in countries with weaker currencies. Sell into the highest-paying markets that have strong currencies. And don’t think because they focus on lowering the cost of production that this is a lower grade product.
Because the Wayland Group (WAYL.CN ; MRRCF) just hit one of the greatest benchmarks a cannabis producer can hit. They’ve achieved GMP Certification (Good Manufacturing Practice). The only other 4 Canadian cannabis producers who hit this milestone are industry giants now.
If you know cannabis investing, then you know these names:
— Aurora Cannabis Inc now about $5.64 a share
— Cronos Group Inc now about $11.35 a share
— Canopy Growth Corporation now about $29.61 a share
— Tilray, Inc now about $74 a share
Wayland has joined them as one of only 5 Canadian producers who are GMP certified producers for the European Union. It’s impressive because Wayland’s a much smaller company.
Why does the ability to sell into the European Union matter? Two reasons: First, because medical cannabis in Europe commands some of the highest prices per gram in the world. The insurance coverage in Europe for medical use of cannabis is widespread. Second, because of the currency exchange. Canadian producers are bearing production costs in Canadian dollars but selling in Euros. (One euro is worth roughly $1.52 Canadian.)
That is part of the reason why, in Canada, Wayland sells cannabis at an average $5.56 per gram. But in Europe Wayland (WAYL.CN; MRRCF) can sell it for up to $16 Canadian dollars per gram. That’s three times the price.
Wayland has taken this idea of low-cost production and high buying markets to an extreme their investors love
They automated production to reduce their workforce from 500 people down to just 26. And payroll costs can add enormous amounts to a company’s overhead (and eat away at margins).
For instance, the minimum wage in Canada is $14 per hour. And paying 500 people at $14 per hour for a 40-hour work week means you’re paying $280,000 per week in payroll. Over 52 weeks that balloons to over $14 million in payroll costs. But not at Wayland. By reducing staff to just 25 employees at a production facility through automation they’ve dramatically reduced costs.
The 4 cost-cutting secrets to these gross margins
— Technology is on their side
Wayland uses an AI Master Grower so they only need a fraction of the workforce of many labor intensive operations.
This cannabis producer has a world-class tech team. By using artificial intelligence and big data they have automated cannabis production to an astounding degree. Some of their competitors need up to 500 employees to match the production of Wayland’s staff of 26. That’s 5% of some competitors’ workforce.
2. Smart strategic alliances
The AI Master Grower is powered by Rockwell Automation, and Wayland is the first cannabis company to embrace automation as a key feature of the cultivation process. With a tiny staff, Wayland can produce thousands of grams of cannabis for export.That brings production costs way, way down. At the Langton facility in Canada, Wayland deploys the AI Master Grower to oversee 365,000 square feet and a potential annual capacity of 95,000 kilos.
3. They cut energy costs to a fraction
When cannabis was illegal, one way police would look for growers was to find places with massive energy costs. That’s because traditional production methods require enormous amounts of energy. Those costs cut into profits.Wayland went through every step and cost of production to find ways to cut costs. The company can cut big costs by embracing renewable energy sources and energy efficient practices. Their facilities are powered by natural gas co-generation and they utilize recycled water for their hydroponics, which cuts down on waste that can accumulate from bad growth practices. The company has worked out a quick-dry method with former JPL scientists.
4. VESIsorb Tech means customers need to take less to get the same effect
Wayland has also brought advances in pharmaceuticals to cannabis cultivation. The company has deployed VESIsorb medical tech for its cannabis products.When cannabinoids are ingested, they enter the body but tend to get clumped in the digestive system, interfering with absorption and diminishing the overall effect. VESIsorb disperses the CBD molecules so they’re easier to absorb, providing higher and more immediate levels of CBD absorption. The company’s automated production techniques, energy efficiency and global reach means it can get its product to the market at a cost lower than many competitors all around the world.
In 2019, cannabis will enter the mainstream. Demand is set to grow. And Wayland’s low production costs will give it an edge over its competitors.
Savvy investors need pay attention.
Other companies transforming the cannabis sector:
Aurora Cannabis (NYSE:ACB) (TSX:ACB.TO)
Recently, Aurora sealed a supply deal with Mexico’s Farmacias Magistrales SA, the country’s first and, for now, at least, only federally licensed importer of raw materials containing THC.
In an announcement from Aurora, the company stated that the deal “firmly establishes Aurora’s first-mover advantage in one of the world’s most populous countries, where more than 130 million people will have federally legal access to a range of Aurora’s non-flower medical cannabis products containing THC.”
Cronos Group (NASDAQ:CRON) (TSX:CRON.TO)
The Canadian firm, though primarily an equity investor, has made some major moves in recent years, wheeling and dealing with some of the hottest names in the sector. Because of its forward-thinking attitude, it has drawn the attention of many major mainstream players, including the company behind Marlboro, Altria Group.
On December 7th, rumors were finally confirmed when Cronos made the official announcement of a C$2.4 billion strategic investment from Altria. “Altria is the ideal partner for Cronos Group, providing the resources and expertise we need to meaningfully accelerate our strategic growth,” said Cronos Group’s Mike Gorenstein, Chairman, President and Chief Executive Officer.
Canopy Growth Corporation (NYSE:CGC) (TSX:WEED.TO)
Canopy has not stopped making moves in the market, most recently swallowing up renowned vaporizer producer Stor & Bickel Gmbh & Co., the creator of the iconic Volcano® Medic and the Mighty® Medic devices
The EUR 145 million all-cash deal makes it one of the largest in the marijuana sector this year, and Canopy Growth is not likely to stop there.
Emblem Corp. (OTCMKTS:EMMBF) (TSX.V: EMC)
Recently, Emblem completed testing on a new oral extended release product with partner Canntab Therapeutics. With the successful tests, the companies announced that they will be moving forward into clinical trials.
In addition to its advancements in the medial field, Emblem is also working towards a safer community, partnering with DriveABLE in an effort to curb accidents from impaired drivers. Nick Dean, CEO, Emblem Corp. explained, “Impairment – whether from alcohol, cannabis, fatigue, underlying medical conditions, or narcotics – is a serious issue that affects safety on roads and in the workplace.”
THC Biomed International (OTCMKTS:THCBF) (CNSX:THC.CN)
THC Biomed operates as a licensed producer under Canada’s Marihuana for Medical Purposes Regulations. It is also engaged in the research & development of the products and services to medical marijuana.
THC Biomed’s recently announced a new THC-based beverage, aiming to appeal to a broader range of consumers. John Miller CEO explained, “THC has conducted extensive research on cannabis edibles and beverages and I have found our product to be exclusive in its category.”
Though THC Biomed may be smaller than some of its more well-known competitors, it is just as ambitious. And it’s beginning to pay off. Earlier this month, the company made its first shipment of cannabis products to its Saskatchewan partner, and is rapidly expanding its holdings, with two new strata lot purchases, adding to its growing array of assets.
By. Joao Piexe
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Certain statements in this press release are forward-looking statements and are prospective in nature. Forward-looking statements are not based on historical facts, but rather on current expectations and projections about future events, and are therefore subject to risks and uncertainties which could cause actual results to differ materially from the future results expressed or implied by the forward-looking statements. Such forward-looking information includes that cannabis use and sales will grow as currently predicted; Wayland’s intended acquisition of various foreign companies and expansion into international markets; Wayland’s plans to bring automation and the latest technology to projects in various locations throughout the world; that it could be granted growing licenses; that Wayland can close on its announced purchases and joint ventures; that through efficiency and technology Wayland can substantially lower its production costs below competitors; that Wayland can sell its product at huge gross margins; that Wayland will create a range of cannabis consumer brands, to be distributed through their own digital platforms and retail facilities; that Wayland can successfully integrate pharmaceutical breakthroughs into its products; that Wayland can achieve its sales targets and gross profit margins as planned; and that it will be able to carry out its business plans.
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