ENTREPRENEURSHIP Hydropothecary has high hopes for luxury pot model Upstart Gatineau company targeting the ‘discerning customer’ with five-star medical marijuana delivery plan BY DAVID SALI david@obj.ca
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he way Sebastien St-Louis sees it, there is plenty of room for growth in the field of high-end medical marijuana. The CEO of Gatineau-based Hydropothecary, which was awarded a licence to officially sell medical pot earlier this month, says his company will separate itself from the pack by offering a top-quality product and superior customer service. “We think there is a huge section of the market that honestly is not price-sensitive – that will basically say, ‘Listen, I’m willing to pay a premium, but I want the best service,’” says the 32-year-old, who founded the firm with business partner Adam Miron. “We’ve looked at the expense and we know it will be substantial, but we think it’s the right thing to do.”
“I think it doesn’t matter what market you’re looking at, whether it’s … watches, restaurants, hotels, hair salons, there’s always a really super high-end market where people are willing to pay, and I don’t think this is any exception.” – UNIVERSITY OF OTTAWA MARKETING PROFESSOR MICHAEL MULVEY
sales on July 1. If everything proceeds according to schedule, the company hopes to go public on the TSX Venture Exchange later this year. So far, Hydropothecary has spent almost $6 million getting off the ground and is seeking at least another $12 million in venture capital. To help lay the groundwork for a public offering, the company brought in someone with plenty of IPO experience: Ed Chaplin, who was Corel’s corporate comptroller when it listed on the NASDAQ in 2006. Mr. Chaplin, 45, says the challenge of nurturing an upstart firm in an industry that is still in its infancy is what attracted him to Hydropothecary. “You’ve got to invest millions of dollars prior to even being assured that you’ve got a business,” he says, comparing the medical marijuana industry to mining. “It’s a big risk. But at the same time, there is also the reward. The medical marijuana business is completely different, but exactly the same, as high-tech. In the end, it’s still a business. You have risks, you have opportunities,
and you need to manage those. At the end of the day, it’s still just a product that you’re trying to sell. It’s no different than any other company.” Hydropothecary becomes Canada’s 19th officially licensed producer of medical pot, less than two years after the industry began to shift from home growers to large commercial operations. There will be some casualties once the sector matures, Mr. St-Louis predicts, but he’s optimistic Hydropothecary will not be one of them. “The market is getting more savvy – people are starting to learn about what makes a good company and what does not,” he says. “I think we’re going to see our first bankruptcy of a licensed producer in the next 12 months. Execution is really determining who is going to stick around. We’re probably 07 going to see some mergers and acquisitions as well. I certainly hope Hydropothecary sticks around, and I believe we will.” OBJ.CA
discerning customer that is saying, ‘I’m not compromising on product quality and I want the best service.’ There is a premium price attached to that.” The company is aiming to capture 12 per cent of the country’s medical marijuana market by 2017. Mr. St-Louis estimates that will equate to 7,500 customers and $30 million in annual sales. Such projections are not far-fetched, says University of Ottawa assistant marketing professor Michael Mulvey. “I think it doesn’t matter what market you’re looking at, whether it’s … watches, restaurants, hotels, hair salons, there’s always a really super high-end market where people are willing to pay, and I don’t think this is any exception,” he says. “At the core, you have to have a good product. Delivery is going to be their point of difference. It’s incredible convenience – it’s almost like a concierge-level service.” Hydropothecary began selling its first products by invitation in mid-June to test its delivery and payment systems, with plans to officially launch its website for nationwide
Don’t expect to see hash brownies on Tweed’s menu any time soon despite a recent Supreme Court ruling that struck down restrictions on how medical pot can be consumed, the firm’s CEO says. Bruce Linton, the chief executive of the Smiths Falls-based medical marijuana producer, says Tweed is licensed to sell marijuana only in dried form that can be smoked or inhaled through a vaporizer, and the high court’s decision doesn’t change that. “Now you have a gap,” he says. “The regulations have to catch up to the ruling. Presumably, we’re going to get granted the right to create those (edible products and extracts), which is using all of the plant, not just the flower.” Allowing producers to use the whole plant, including stems and leaves, rather than just the flower would be more economical, he says. It would also open the door to the production of oils with a standardized amount of medicine, making it more like traditional pharmaceutical products. “The potential is it looks a lot more familiar to doctors and it becomes potentially something that can be so specific and consistent that it could also become insurable,” Mr. Linton says. “It’s a very beneficial ruling for the patients who want things in whatever format they want, and it potentially could be pretty impactful for us because we have an awful lot of materials that currently have to be put into waste that could … have a pretty high value.” In addition to its Smiths Falls facility, Tweed now has a 350,000-square-foot plant in the Niagara region that can easily accommodate an extraction operation, he says. But Mr. Linton doubts the company, which sold 165,000 grams of product in the first quarter of 2015, will be setting up a bakery in the near future. “I think we’ll be the producer of ingredients rather than the finished goods,” he says.
MONDAY, JUNE 22, 2015
Hydropothecary is the second local company to get the go-ahead to sell medical marijuana, joining Smiths Falls-based Tweed. Mr. St-Louis says his firm is pulling out all the stops to corner the market on “luxury” pot. Hydropothecary is pledging free after-hours delivery to all major urban areas in Canada, a 24-7 call centre and a guaranteed supply of all strains. Of course, that type of five-star customer experience won’t come cheap. Whereas Tweed’s strains, for example, cost from $6-$12 per gram, Hydropothecary’s variants will start at $15. “It’s really all-in pricing,” Mr. StLouis says. “We’re really looking for the
Hydropothecary’s Adam Miron, Ed Chaplin and Sebastien St-Louis. PHOTO BY MARK HOLLERON
Tweed hashes out court ruling