Canopy’s $350M Hiku Acquisition Underscores the Value of Cannabis Brands -- CFN Media

SEATTLE, July 17, 2018 (GLOBE NEWSWIRE) -- CFN Media Group (“CFN Media”), the leading agency and financial media network dedicated to the North American cannabis industry, announces publication of an article covering recent deals in the retail cannabis sector and how they reflect on the value of one of North America’s leading cannabis brands, MedMen Enterprises Inc. (CSE:MMEN) (OTCQB:MMNFF). Cannabis producers may have been the best investment opportunities in the early phases of the industry, but retail and brands are quickly growing in importance as the market evolves. Today, investors have real access to businesses across higher-value areas of the supply chain than growers. Last week’s announcement regarding Canopy Growth Corp.’s $350 million (fully diluted) acquisition of Hiku Brands Co. Ltd. — owner of the Tokyo Smoke chain of coffee shops in Canada — underscores this new trend.

MedMen's 5th Avenue Retail Store, New York

Hiku has a handful of coffee shops in Ontario that sell cannabis accessories, but it won’t be allowed to sell adult-use marijuana in the province unless Premier Doug Ford changes the rules. The company also has a shop in Calgary. The only clear path Hiku has to selling legal cannabis is in their 10 locations in the Province of Manitoba with a population of 1.3 million. The company has applied to open stores in Alberta, population 4.3 million, and is working with an applicant to open stores in Newfoundland, population 0.5 million.

Canopy Growth acquired Hiku to strengthen its retail and brand portfolio. While Hiku was already set to merge with another licensed producer, which required a $10 million break-up fee, Canopy Growth went over the top to own Hiku’s brands. This is a sign of how competitive the cannabis industry has become in recent months, on the heels of the two pre-eminent cannabis companies in the U.S. going public: Green Thumb Industries Inc. and MedMen Enterprises Inc.

MedMen appears particularly well-positioned as a branding machine; having built to date one of the most recognized brands in the industry, being dubbed “the Starbucks of Weed” and drawing comparisons to Apple Stores.  At the core of MedMen’s success has been their marquee retail locations in the most iconic shopping districts in the United States. The company currently has 13 stores in three states and licenses for 45 in 5 States which the company says will all be open by 2020, plus five large scale cultivation and manufacturing facilities.

The current MedMen stores are located in Tier 1 markets in California, Nevada and New York.  These three markets collectively address 383 million potential customers based on demographic data compared to 44 million in Canada. By putting the stores in high profile shopping districts such as Los Angeles’ Abbot Kinney, Beverly Hills, near the Las Vegas Strip, Downtown Las Vegas and New York’s Fifth Avenue, MedMen is creating a dominant retail brand that is building equity with the consumers of this emerging industry.

Transaction Highlights Value of MedMen’s Assets

While establishing its robust retail presence and brand, MedMen aims to control the entire supply chain in all the markets where it operates. The company has its own production facilities capable of producing about 5,000 kg/year currently. Next year, the company will be going live on a new facility in California that will double its production capacity. Owning the entire vertical gives MedMen leverage against vendors and the ability to build and distribute product brands consistently across the U.S.  In the U.S., cannabis cannot cross state lines so products must be produced and consumed inside each state. With factories and retail presence in every market, MedMen is uniquely positioned to manufacture and distribute nationally branded products consistently. 

It is a model the company plans on replicating in all the markets it enters. In early June, the company announced that it secured one of 13 licenses in Florida with the right to open 25 dispensaries. Florida is the country’s fourth most populous state with a thriving medical marijuana program and one of the largest addressable markets in the world.

The verdict is still out on who will own the U.S. market, but MedMen has a large head start. The Florida acquisition is proving that going public has only added velocity to the execution of its strategy. 

Looking Ahead

Canopy Growth’s willingness to pay $350 million for a brand with a retail niche in a small Canadian market suggests that companies like MedMen — with presence in major U.S. markets, with cultivation and manufacturing to boot — hold tremendous value.

Key U.S. cannabis markets where MedMen operates, such as California and Nevada, already offer a full spectrum of cannabis products legally to consumers, whereas the Canadian industry will start with limited varieties.  There is a clear pathway to supporting states’ rights to legalize cannabis and the majority of the public supports legalization in the U.S. Accordingly, U.S. investments could offer a better value than Canadian investments given their lower valuations when looking at tangible revenue growth and earnings.

For more information about MedMen, visit the company’s website or download their investor presentation.

Please follow the link to read the full article: http://www.cannabisfn.com/canopys-350m-hiku-acquisition-underscores-value-cannabis-brands/

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flane@cannabisfn.com

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