California’s Bigger, Flashier Cannabis Market Set to Outpace Canadian Market

A divide is already happening in these early days of cannabis legalization in major markets such as Canada and California. Suppliers are jockeying for position within the hearts and minds of a growing consumer base, emphasizing the need to establish brand recognition, with pushes coming from companies such as Chemistree Technology Inc. (CSE:CHMOTCQB:CHMJF, FRA: CM1), MedMen Enterprises Inc. (CSE: MMEN) (OTC: MMNFF)Curaleaf Holdings Inc. (CSE: CURA)(OTC: LDVTF), Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON), and KushCo Holdings, Inc. (OTC: KSHB).

Regulatory challenges in Canada that don’t exist in California are likely to cause a branding gap, with the advantage going to the west coast state. Unlike in California where customers are greeted with colorful displays, hip brand names, and a plethora of products, Canadian consumers must settle for a much more subdued and humdrum buying experience.

Legally, Canadian cannabis companies and dispensaries can’t lure customers with flashy designs. Health Canada, the government arm overseeing packaging regulations for cannabis, wanted to approach packaging from a health and safety perspective as opposed to a revenue-generating perspective—which practically means branding is officially illegal.

Meanwhile, in the US, companies such as Chemistree Technology Inc. (CSE:CHMOTCQB:CHMJF, FRA: CM1) can openly sponsor high-profile events such as the recent High Times ‘Biz Bash’ party, featuring celebrity rapper 2 Chainz during the MJBizCon Conference and Expo held in Las Vegas. The company’s involvement with the event was part of an aggressive marketing and sale campaign to publicize the launch of the new website of its flagship brand, Sugarleaf.

Jeremy Deichen of Chemistree Technology Inc. (CSE:CHMOTCQB:CHMJF, FRA: CM1) commented, “it [was] our pleasure to team with our friends at High Times to pull off this amazing event. In working with them over the years with ‘Growing Exposed’ we have learned that they are truly the masters at getting eyeballs on what is new and fresh in the industry”.

The California Advantage

When Chemistree Technology Inc. (CSE:CHMOTCQB:CHMJF, FRA: CM1) partnered with the Washington-based Sugarleaf brand back in May, it did so with the expressed intent to more than double the reach of the product line by the end of 2018, and to quadruple it through 2019. Part of that plan included a strategic entry into California, which was further solidified with the company’s land purchase of 9.55 acres in California’s prominent Desert Hot Springs Cannabis Cultivation Zone.

The move into California is significant, given the size of the market, and the blue-sky potential still yet to be realized in the state. Cannabis spending in California already hovered near $3 billion last year, prior to recreational marijuana officially becoming legal on January 1st. By 2022, the market is expected to soar to $7.7 billion.

However, the overall total output of the marijuana industry in the state is projected to be nearly double that, with total economic impact (going beyond direct spending only) estimated to be nearly $15 billion in the next four years.

With its population of nearly 40 million people, California is only slightly more populated than all of Canada at 39 million people. Yet, California alone has a higher peak sales potential than all of Canada, and that’s even with the federal government maintaining its Schedule I classification on the drug.

How is California so advantaged? For starters, selection for Canadian customers is much more limited, and not only because of a lack of packaging. Canadians so far can only legally purchase flower, seeds, plants and oil only, whereas Californians can get all those, plus edibles, concentrates, topicals, beauty products, infused beverages and more.

Add on top an ideal growing climate, that can reduce per-gram production costs, and California is built to be the hub of the US cannabis sector.

According to a newly released report from the Bank of Montreal, the global cannabis market could be worth $194 billion in seven years. Analysts at Bank of Montreal believe that additional countries will fully legalize marijuana, including the United States and many (if not all) European Union countries in the future.

If all 28 countries in the EU were to greenlight cannabis, it could lead to a $30 billion medical marijuana market and a whopping $68 billion adult-use market. Legalization in the US would mean up to $19 billion in annual medical pot sales and a further $49 billion from the recreational side of the equation.

With its already $3 billion in contributions, California is a global leader in the cannabis sector, with plenty of room still to grow.

California As a Launch Pad

The Californian advantage in the cannabis sector is pronounced, which is why Chemistree Technology Inc. (CSE:CHMOTCQB:CHMJF, FRA: CM1) is using the state as a launch pad for the assets it’s acquiring.

While the legalization of adult-use recreational marijuana didn’t officially begin until January 1, 2018, medical marijuana has been in place for years.

Chemistree Technology Inc. (CSE:CHMOTCQB:CHMJF, FRA: CM1) has seized upon its own California advantage. Built upon a team of executives and advisors with experience in the cannabis industry across multiple markets, the company is poised for using California as a hub.

The company has already acquired 9.55 acres in California’s prominent Desert Hot Springs Cannabis Cultivation Zone. The property can support a total of three sites containing cultivation and processing buildings, totalling approximately 205,000 sq ft, based on the municipality’s regulations.

Having an alliance with the successful brand Sugarleaf, which has already been cultivating and processing cannabis products in Sedro Woolley, Washington, Chemistree Technology Inc. (CSE:CHMOTCQB:CHMJF, FRA: CM1) is paving the way for an expansion.

Branding efforts are already underway with Sugarleaf, which has already established itself as a quality brand with prominent marketing leading the way. Among the team getting the word out will be advisor Jeremy Deichen, who brings over 20 years of cannabis industry experience in cultivation, processing, sales, branding, and marketing. Deichen is the creator of the Growing Exposed series which is distributed by the cannabis industry’s largest media publication, High Times.

Vertically integrated, Chemistree Technology Inc. (CSE:CHMOTCQB:CHMJF, FRA: CM1) is now primed and ready to begin establishing its California operations, through clever branding of Sugarleaf and other assets, commencing development on the Desert Hot Springs facilities, as well as expanding into Northern California with its joint venture processing facility. The company is currently seeking capital to expand locations in the state and its service offerings.

Further California Offerings

Leading retailers MedMen Enterprises Inc. (CSE: MMEN) (OTC: MMNFF) has seen sales in California exceed expectations. The bulk of the company’s sales come from California, with eight stores in the state (including four in Los Angeles), with 92% of its $20.6 million in fiscal Q4 sales. For the most part, growing demand in California is mostly responsible for MedMen’s revenue increasing 44% from the prior quarter.

Going in another direction into Canada, Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON)has a deal with MedMen to offer the MedMen brand into Canada. However, Cronos itself has been working on its own branding, even though its main consumer base is in Canada. Back in September, Cronos Group launched its second cannabis brand for the domestic recreational market, called Spinach™. The branding idea was to allow consumers in Canada to purchase high quality Spinach™ “without the fear of persecution for their love of beautiful green plants.”

Capitalizing on California’s regulatory packaging requirements, KushCo Holdings, Inc. (OTC: KSHB)provides companies with a trusted supplier. The specialized packaging provider has benefitted from California’s rising sales. KushCo’s own sales soared 171% year over year to $51 million last fiscal year.

While not currently operating in California, Curaleaf Holdings Inc. (CSE: CURA) (OTC: LDVTF) is steadily expanding into new markets. The most recent expansion was the opening of its 5th retail location in California-neighboring Arizona. However, with the launch of its new line of premium hemp-based CBD products called Curaleaf Hemp, Curaleaf products could eventually be sold across state lines in multiple legalize states. Curaleaf is present in 12 US states, including Florida, New York and Oregon, but it also has licensing pending in California and Pennsylvania.

For a free research report on Chemistree Technology Inc. (CSE:CHMOTCQB:CHMJF, FRA: CM1), visit microsmallcap.com.

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