In advance of Benzinga’s Cannabis Capital Conference journalist Sara Brittany Somerset sat down with John Arbuthnot, CEO of vertically integrated cannabis company Delta 9 (OTCQX:DLTNF) to discuss what’s in store for the company. Somerset agreed to share the following introduction and interview with Benzinga:
Delta 9 produces ingestible oils, vape cartridges, concentrates, etc. that are distributed across six Canadian provinces, representing a market of nearly 25 million Canadian consumers.
The second main business segment for Delta 9 is retail. The company currently operates 16 brick-and-mortar retail shops across three provincial markets in Canada and is expanding across the Canadian West.
The final business segment is what Arbuthnot calls its B2B segment, or sales of its proprietary growing platform, cultivation, equipment sales, consulting and licensing services to other licensed and pre-licensed cannabis companies.
The B2B segment is where Delta 9 has taken the opportunity to push into the United States.
“We’ve built out about three dozen facilities across North America, including four facilities in the United States across multiple State markets, including Michigan, Maine, Montana, and Illinois over the last 24 months,” Arbuthnot said.
“So with all of those business segments together, we are one of Canada’s fastest-growing cannabis companies, rated 7 out of 448 companies in the Globe and Mail’s most recent Research on Business Report in October. Last year, we did about 52 million in top-line revenue, as well as creating positive even done cash flow for our investors over that period.”
The interview has been edited for clarity and brevity.
Q How did Delta 9 gain entry into the US market?
A.) As a TSX-listed company we are prohibited from plant-touching activities in the United States. Therefore, until there is a federal regulatory shift at the U.S. level, our business activities, principal in the US or any book capital markets are on the infrastructure side.
Q.) For now, non-plant touching, but you are proactively setting up the infrastructure to make the leap once federal legalization occurs in the U.S.
A.) That is correct.
Q.) I understand Delta-9 primarily produces flower but also concentrates.
A.) On the Canadian side, we produce flower pre-rolls and then basically the full suite of derivative products apart from edibles and drinkables.
Q.) Including CPG vape carts?
A.) Yes, ingestible oils, ingestible, MCT oils, kief, hash, etc. Name a product platform and we produce it – again apart from those specialty elements, the edibles/drinkables.
Q.) Do you plan on incorporating edibles at some point in the future?
A.) We mention that in our investor deck as something to look forward to for 2022. But, it isn’t a principal focus for us.
Q.) You’re producing a very high volume of flower which seems to be your core business.
A.) Yes, flower represents about 75 percent of our overall business. Flower and pre-rolls currently make up the bulk of the Canadian Market by revenue.
Q.) How is your flower produced? Greenhouse? Sungrown?
A.) What makes us unique is the way we produce, which is very different from outdoor cultivation with big greenhouses. We produce in essentially retrofitted, shipping containers. We take standard 40-foot shipping containers and install customized wall panels, electrical lighting and HVAC security, all done at our manufacturing facilities. We’re left with units that are scalable and stackable in our facility. The real positioning here is that we can essentially dial in those factors that most directly contribute to product quality, such as temperature, humidity, light, intensity, CO2, saturation, etc. All of that is dialed in precisely. We treat cannabis like an outdoor agriculturally produced commodity.
Q.) I’ve seen that type of grow at Green Stripe Naturals in Jamaica – repurposing the shipping containers. They call them “sea cans.”
A.) The real difference from our side is that we’re not simply an equipment manufacturer, we use these units ourselves, which gives us a unique insight that develops investments in continuous improvement initiatives. All of that makes not only our cultivation facilities better, but also improves our value proposition for our cultivation and B2B customers.
Q.) Are the modular shipping containers fully automated, like THC controls?
A.) Not fully automated as in the actual plant movements within the facility. Transplanting activities are manual, but everything else within our facilities is automated, including our watering, fertigation and nutrient delivery. We have about 50,000 plants under production at any given time within our facilities.
Generally speaking, through the flowering period is 10 weeks. It’s not uncommon for us to plant the plants. We go in twice the rote, in a 10-week cycle to defoliate to remove excess, such as broad leaves to allow the light to penetrate more evenly via the canopy. Everything else is automated.
Q.) Do you use in-house, proprietary software or an external vendor, such as THC controls?
A.) All of the tech, hardware and software, are developed in-house. So everything is proprietary throughout the entire growth cycle.
Q.) Does Delta-9 license this technology as part of your consultancy?
A.) Yes, we do.
Q.) How is Delta-9 different from other large players such as Hexo or Canopy Growth?
A.) Where we look to differentiate ourselves as a cannabis company is that Delta-9 is one of the few Canadian operators that has actually achieved profitability, positive cash flow and EBITA. Also, our approach to the Canadian market is that we have taken that vertically integrated approach, which is a very different approach than the Canopies and Tilrays that have taken the CPG approach. Meaning, they’re just going to create branded products and then distribute those through existing market channels.
We see ourselves as having the key benefit of direct access to the retail segment, which gives us the ability to push distribution of our in-house, branded products.
Q.) Since the company is not only Canadian-focused, but it has some exposure through the U.S. infrastructure segment, will you eventually develop the infrastructure into a separate spin-off or combined MSO?
A.) That’s correct. So far Delta-9 has participated in building out dozens of facilities across the U.S. There is a natural progression across the border, once the federal regulations and landscape change a little bit.
To learn more about Delta-9’s cultivation techniques, expansion plans or products, tune into day two of Benzinga’s Cannabis Capital Conference October on Oct. 15th in New York City, at the Times Square Marriott Marquis at 9:30 am. If you can’t make it IRL, the interview will also live stream on Benzinga’s Youtube channel.