Distribution, Brands, and Revenue Growth are Key for Emerging Cannabis Companies
May 21st, 2019
App, Exclusive, News, Top Story
As the legal cannabis market matures across North America, the story is slowly turning from potential to reality. Companies are being examined more closely than ever to gauge which ones have staying power, which ones are executing on long-heralded plans, and which ones are actually creating revenue from whatever it is they are selling. There are enough consumers in enough legal markets now to make real revenues, products, infrastructure, and growth reasonable measuring sticks.
Gabriella’s Kitchen Inc. (CSE: GABY) is a cannabis and hemp consumer packaged goods (CPG) company with a dual channel sales strategy, meaning it sells into the regulated dispensary channel as well as the mainstream retail and grocery channel. The inspiration came from the efforts of two sisters, Gabriella and Margot Micallef following Gabriella’s dire cancer diagnosis. Their success in exponentially prolonging Gabriella’s life now forms the foundation of GABY. The company already offers healthy prepared meals, many containing hemp hearts and seeds, in over 3,400 mainstream retail stores. Now, GABY has taken the lessons learned from traditional CPG and expanded aggressively into the cannabis industry with its acquisition of new product lines and distribution networks focused on CBD- and THC-derived products. By marrying the nutritional food products with the wellness and lifestyle cannabis brands, the company is now demonstrating significant and growing revenues in key markets.
California is the Focus
California has a long history with the cannabis industry, dating back to the earliest days of marijuana prohibition and continuing through today where it comprises the largest legal cannabis market in the world. The state is still catching up to its own legalization efforts as it wrangles the deeply entrenched black market, with regulatory confusion and a sluggish licensing process slowly giving way to a robust and healthy legal environment. Companies with their licenses, infrastructure, and processes in place at this stage may have a leg up on less-developed hopefuls looking to enter the still-constrained marketplace.
GABY took its place in the California cannabis market by acquiring Sonoma Pacific Distribution earlier this year. Sonoma Pacific holds cannabis manufacturing and distribution licenses, selling its own brands as well as a wide variety of third-party brands throughout the state. The company’s mission is to represent California’s conscious cannabis products, brands, and cultivators with integrity. Sonoma Pacific has deep relationships across the state’s cannabis supply chain which should prove invaluable as GABY looks to quickly penetrate the market with its own lines of cannabis-derived and infused products.
The acquisition is accretive to GABY, as Sonoma Pacific brings with it significant and growing metrics reporting Q1 2019 sales of CAD$9.8 million. Based on updated projections for the balance of the year, GABY now is expecting its yearly revenues for FY 2019 to end up somewhere around CAD$35 million. In the very near term, Sonoma Pacific’s existing business makes up a large chunk of GABY’s revenue.
But GABY sees a much larger and more profitable opportunity as a result of the acquisition. By leveraging the existing Sonoma Pac infrastructure and supply chain, the company anticipates the continued expansion of its own value added branded cannabis edibles across the state. This infrastructure enables GABY to get its products to market more quickly than prior to the acquisition. The acquisition also has the potential to improve Sonoma Pac’s financials, as augmenting its portfolio with higher margin proprietary products could eventually result in higher margins for the combined company.
In a recent interview, GABY CEO Margot Micallef stated, “Even though we own our manufacturing facility and we own our distribution license and logistics, we are not a manufacturing company and we are not a distribution company. We use that infrastructure to support our brands, and to get our brands to market in a quality way and expeditiously.”
Cannabis and Wellness, Combined
While the Sonoma Pacific acquisition represents a major leap forward for GABY, especially in terms of California and cannabis-derived products, the company is already fairly established in the health and wellness market across North America. Through the development and marketing of its Gabriella’s Kitchen line of healthy food products, the company boasts over 3,400 distribution points throughout Canada and the United States. This mainstream network consists of outlets like grocery stores, health food stores, and co-ops.
GABY is planning to introduce hemp-derived CBD wellness products through this channel in 2019. To that end, the company has launched a line of CBD infused and flavored olive oils, and has entered into several joint ventures to produce hemp-derived CBD products including a line of CBD infused coffee beverages and a line of topicals. GABY most recently announced an agreement to acquire a manufacturer of healthy CBD infused chocolates that are already being sold in 250 mainstream retails outlets. This diversity of products is an indication of the types of products in the pipeline. The strategy is to meet consumers “wherever, however and whenever they want to consume cannabis or hemp products,” says Margot Micallef. To this end the company will continue to evolve its product line to accommodate the changing tastes of consumers.
In the regulated cannabis channel, according to the Marijuana Policy Group, Leeds School of Business, the majority of products sold are still primarily flower and concentrates, at around 75% of sales. GABY’s sales in this channel reflect this trend and as COO Jamie Fay says, “While we want to introduce novel and unique products, we don’t want to get too far ahead of the consumer. With our deep CPG experience we continually analyze where the market is and manage the product mix at a state, county and store level accordingly. In the mainstream channel we are introducing hemp-derived CBD edibles, beverages, topicals, and tinctures because that is what consumers in that channel are looking for,” he concluded.
By combining the upward trends of wellness products and cannabis, and by focusing on the crucial California market, Gabriella’s Kitchen has positioned itself at the intersection of some major retail thoroughfares. Keep an eye on the company as it executes on key growth initiatives throughout the balance of the year and beyond.
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