Essay: Cannaboid company project

In the long-term, its main objectives are to become the largest exporter of full-spectrum phytopharmaceutical-grade cannabis in the world, expand its compound to include a commercial greenhouse, move into the cannabidiol (CBD) extract market, breed new medically useful varieties, export to fifteen countries, and construct a brand that is trusted by craft cannabis consumers.
1.4 Legal Structure
NewCo will be structured as a limited liability company. This entity structure was chosen to allow for multiple founding members and investors to participate in this opportunity along with reducing any liability incurred to all parties. Since medical cannabis is federally legal in Zimbabwe, there is very little legal risk when compared to another country such as the United States, however, NewCo is always prepared for any potential problems, therefore, has chosen the limited liability structure for the safety of its investors, founders, and employees. The current equity distribution is to be determined. NewCo is prepared to take on as many investors as necessary to accomplish its goals.
1.5 Proposed Location
The cultivation site will be located in Harare, Zimbabwe. Zimbabwe is ideal for cannabis as it boasts long summers, rich soil, plenty of sunlight, an ideal microclimate, and exists in a subtropical environment. Another benefit to this location is that Zimbabwe is one of the few countries in Africa that allows for medical cannabis to be cultivated, extracted, and distributed locally as well as internationally.
2.0 Product and Service Description
There are five main aspects of NewCo cannabis products and services. First, the company focuses on producing empirical, consistent quality by following all of the requirements of the Organic Certification through the European Union and the Biodynamic Certification through the Demeter Association, Inc. The first program is a public one originally based on the United States Department of Agriculture Organic Certification. Through NewCo following these guidelines and only using inputs that are allowed within the program, it will produce a product that is free of synthetic contaminants, toxic biocides while delivering its maximum medicinal benefit.
Figure 3: Map of Proposed Location
The second program is a private one originally based on the teachings of Rudolf Steiner, the german agriculturalist, and Demeter International, the official certifier of biodynamic farming. Biodynamic farming is very respected by connoisseurs agricultural consumers as it
produces some of the highest quality fruits, vegetables, wine, and other consumable products in the marketplace. In order for a company
to obtain the Biodynamic Certification, it must meet all of the requirements of the Organic Certification. Therefore, by NewCo having both of these certifications, it will both increase the product quality, but also the product value and thus price on the wholesale market.
Second, NewCo will only be cultivating unique, rare, and useful medicinal varieties of cannabis. NewCo understands that its value as a company begins with its cannabis genetics. Therefore, the company is in the process of securing a strong, foundational product offering that emphasizes differentiated terpenoid and cannabinoid profiles, also known as chemotypes, which create different medicinal effects. In addition to being unique and rare in their phytochemical profiles, NewCo will only cultivate cannabis varieties which are resistant to local
pathogenic insects, bacteria, and fungi. It is critical for any cannabis company to not only cultivate a product which will sell in marketplace, but to also only cultivate a variety which is not difficult to product due to its high levels of immunological resistance.
Third, a major differentiation of the cannabis grown is through the use of probiotic agriculture, which is a discipline underneath sustainable agriculture. Probiotic agriculture uses beneficial bacteria, fungi, viruses, and microbes to inoculate the plants against pathogens and injurious insects while increasing the plants effectiveness at nutrient uptake, hormone regulation, and so forth.
Probiotic farming not only makes cannabis cultivation simpler, but it reduces the cost of production. Most importantly, it increases the phytochemical levels within the plants which create a stronger effect and a more flavorful taste. Furthermore, the correct harvesting, longer curing, and proper storage techniques enhance the flavor, provide a smoother experience, and preserve the finished cannabis for an extended period of time.
This type of cultivation produces flower that can be classified as optimal in its phytochemical profile also known as full-spectrum flower. Full-spectrum means that the flower has the largest range of critical cannabinoids, terpenes, terpenoids, flavonoids, and other compounds possible that interact in unique ways to create what is known as the entourage effect. The entourage effect is an event where enough of these unique phytochemicals are present to interact with each other to produce a more efficacious relief of a customer’s medical symptoms than just a flower that is grown for a single or a few compounds. For example, many cultivators strive to grow a cultivar that produces a majority of Delta-9-Tetrahydrocannabinol (THC) or CBD. NewCo, instead, seeks to produce cultivars which are highly effective across multiple medical contexts with zero negative side effects. Figure 6 is a table from “Taming THC” a peer-reviewed journal published by Ethan Russo documenting synergistic medical efficacy between cannabis cannabinoids and terpenes.
Figure 5: Outdoor Cannabis Plant
Figure 6: “Taming THC” Table of cannabis Cannabinoid-Terpene interactions
As an additional example of the contrast between full-spectrum flower and more phytochemically limited flower is the use of CBD in a medical context. CBD is a cannabinoid that has anti-inflammatory and antispasmodic qualities. Most cannabis companies produce cultivars that have a great majority of CBD and seek to reduce any other cannabinoid in the cultivar, especially THC. However, Israeli research has shown that use of CBD with Delta-9-Tetrahydrocannabinol (THC) and other phytochemicals actually increases the efficacy of CBD. It is through this sophisticated methodology that NewCo will sell cultivars that will be able to capture market share in that sector due to their efficacy over the competition.
Fourth, when NewCo opens its extraction and manufacturing facility, it will focus on ethanol as the primary solvent for extracting the vital phytochemical compounds. This is because ethanol as a solvent is non-toxic, sustainable, and financially efficient. Since the infused product market will have many competitors, NewCo will initially specialize itself into one category so that it may dominate a single niche before moving into other sectors. This product category is what is known as distillate. Distillate is an isolated extraction of primarily THC. This cannabinoid has received more research and seen more peer-reviewed journal published about it than any other phytochemical within the cannabis plant. THC is the most desired medical compound and at this time, research has show it has the most medical potential being anti-carcinogenic, anti-neurodegenerative, etcetera. Additionally, distillate has the benefit of being incredibly consistent.
While NewCo understands that the medical research shows full-spectrum is the most medically efficacious, it is also sees that the cannabis industry will have multiple segments within it, one of which will be for the manufacturing and sale of single active compounds akin to the traditional pharmaceutical industry. NewCo intends to get ahead of its competition by being on both of the market by producing full-spectrum, highly specialized flower and becoming a leader in the production as well as distribution of single cannabis phytochemicals starting with THC distillate.
2.1 Problem it Solves
NewCo solves two primary problems within the cannabis industry which are product quality and sustainable business practices. For product quality, many businesses within the industry when cultivating cannabis use synthetic fertilizers, improper growing mediums, and overuse legal biocides past what is recommended on the label-in addition to their history of illegal biocide usage. Their quality assurance is commonly poor with many companies having constant pathogen problems such as powdery mildew, botrytis, root aphids, russet mites, and more which lower the phytochemical levels of the plants along with creating health risks for the end consumer.
For unsustainable business practices, these are unfortunately ubiquitous in the industry such as overuse of water, electricity, and other resources. Cannabis is mostly grown in retrofitted warehouses that provide a non-ideal environment for the plants to grow as the air ventilation and air quality is unhealthy with the lack of access to natural sunlight. Even cannabis cultivated in greenhouses can still be unsustainable if built with non-environmentally friendly materials and without any ties to renewable energy source. These practices cause harm to the employees, environment, and the businesses’ profit margins.
NewCo addresses both of these problems through holistic means. Product quality is enhanced and maintained through scientifically backed organic, biodynamic, and integrated pest management techniques. Quality assurance is guaranteed by practices and procedures developed in botanical medicine and phytopharmaceutical production. Sustainable philosophies and practices are employed at every step in the process such as cultivating in an outdoor field setting.
2.2 Proprietary Features that Give Competitive Advantage
NewCo has three main competitive advantages. First, the company will be one of the few entities with the ability to research, cultivate, extract, and export medical cannabis in Zimbabwe. This allows the company to gain rare, proprietary knowledge on the unique advantage of cultivating specific cannabis varieties in Zimbabwe. For example, cutting edge research is leading to cannabis being a highly morphological plant which is easily influenced by the angle of the sun at a specific latitude, soil microbiome, atmospheric environment, and disease pressures into creating special phytochemicals that have very unique effects. As seen in Figure 8, the African continent is one of the only viable production hubs for NLD (narrow leaf drug) cultivars. In addition, African-specific NLD cultivars produce the cannabinoid tetrahydrocannabivarin in larger quantities than any other naturally occurring environment. Preliminary research is showing this cannabinoid could be useful for appetite suppression and regulating blood sugar levels both of which would be helpful in the treatment of type 1 as well as type 2 diabetes.
Figure 8: Map of cannabis cultivar microclimates
Second, NewCo will use superior levels of quality control and quality assurance to create a consistent demand for its products. This includes utilizing Good Agricultural Practices (GAP), Good Manufacturing Practices (GMP), and other well-respected independent standards. Since the cannabis industry is mostly composed for companies which make great claims, NewCo differentiates itself with internationally recognized procedures for creating quality that is verifiable through these independent certification and standards. NewCo also takes into accord the use of complete Quality Management Systems (QMS) such as the International Standard of Organization’s (ISO) 9000.
Third, NewCo is in a strong position to take full advantage of this opportunity because its team experience in both commercial cannabis production and cannabis distribution. NewCo’s team has developed a superior level of skill through years of work in various types of cannabis cultivation facilities as well as managing a full cannabis supply chain. It is this unique combination that gives NewCo an excellent advantage against its competition.
2.3 Cost of Production and Price
Due to using many environmentally sustainable practices, those same practices also save more money than unsustainable practices. This allows for an overall lower cost of production and should a serious price war occur, NewCo can survive and continue to grow in profitability. An example of a cost saving sustainable practice is anaerobic composting also known as Bokashi composting. Through the cultivation of cannabis, there is a waste product of pruned stems, branches, leaves, and flowers. Instead of paying a fee for transportation to a landfill along with other regulations surrounding cannabis waste, those plant materials are Bokashi composted which in seven to ten days creates usable fertilizer that is reincorporated into the soil. This saves money on fertilizers as well.
Through field cultivation combined with the best of traditional and sustainable agriculture along with lean manufacturing practices, NewCo achieves a very low cost of production when compared to the competition with an artisan level of quality. Through cost and revenue projections, NewCo estimates that it will be profitable should the wholesale price of flower reach $500.00 for an outdoor pound of flower in year one and $10,000 for one kilogram of distillate. The outdoor cost per pound is $11.65 in year one with the cost per kilogram of distillate being $2,030 in year one. However, due to our incredibly low cost of production, we could theoretically wholesale our pounds at year five for much lower. The current spot price for a pound of flower in the United States, which is a highly saturated market, as per Cannabis Benchmarks, a price spotting company within the industry, as of February 15th, 2019 is $1,161.72 demonstrating NewCo’s strong competitive advantage.
Figure 9: Cost
2.4 Intellectual Property Special Permits
NewCo intends to obtain the relevant intellectual property protection on items such as the company name, slogan, logo, proprietary processes, research findings, etcetera. Intellectual property is critical and everything that can be done for intellectual property protection will be done by NewCo.
3.0 Operations
NewCo is dedicated to runnings its operations in the most effective and compliant manner possible. This section serves as a high-level overview of the major aspects of NewCo’s operations in Zimbabwe. NewCo has reviewed all of Zimbabwe’s laws and regulations that govern medical cannabis within the country, the most of which being the Dangerous Drugs, Production of Cannabis for Medicinal and Scientific Use, Regulations of 2018. Below is a brief explanation of each of key operational aspect.
3.1 Cultivation
NewCo cultivates all of its cannabis in accordance with GAPs and GMPs. The majority of its cultivation practices have been described in 2.0 and 4.2 of this business plan. Its soil and fertilizers are continually tested to ensure they are free from all contaminants including heavy metals, biocides, and other harmful components. Its water is also continually tested to ensure that it is free of contaminants as well. NewCo utilizes a stringent Integrated Pest Management (IPM) plan that relies heavily on controlling the cultural factors that cause disease and implements safe mechanical as well as biological controls.
Synthetic chemicals are never used in the cultivation of NewCo’s products.
3.2 Extraction
NewCo extracts and manufactures all of its distillate in accordance with GMPs and GLPs. The majority of its extraction practices have been described in 2.0 and 4.2 of this business plan. NewCo only uses ethanol as a solvent in its extraction process which is in compliance with the requirement that limits Zimbabwean extraction to using Class 3 Solvents as outlined in the Guidance Document – Impurities: Guideline for Residual Solvents, ICH Topic Q3C(R5). At the conclusion of a distillate run, a representative sample from each batch is taken for analytical testing by a government licensed laboratory for residual solvent and cannabinoid testing. All equipment is kept sanitary at all times and premises of the laboratory are maintained in an orderly manner. While zero individuals on NewCo’s team have ever manufactured a product that needed to be recalled, NewCo will have recall reporting and product recall procedures in place in accordance with the Zimbabwean regulations.
Figure 10: Integrated Pest Management Pyramid
3.3 Packaging and Storage
All products be they flower or distillate are packaged in child-resistant containers that keep the products environmentally protected with a sealed stamp that shows if it has been tampered with to prevent the consumption of adulterated product. All packages will not hold more than 30 grams of dried cannabis per container and the net weight will accurate within a variance of 10% in accordance with Zimbabwean regulations. Each label will communicate the company name, batch number, packaging date, expiration date, the cannabinoid content, product weight, and other critical information to the purchaser. The label will also contain warnings about usage along with educational information.
3.4 Transportation
Given that NewCo will be shipping its cannabis across the world from Zimbabwe, the company will only transport cannabis in one shipment per order ensuring that all containers have been packaged and labeled correctly in accordance with Zimbabwean regulations. Each shipment will be no more than 150 grams of dried cannabis. Cannabis will only be shipped to licensed business and authorized personnel in legal medical cannabis markets.
3.5 Security
NewCo takes it security system incredibly seriously given the value of the product that it is producing. The site itself will be obscured from view via naturally installed vegetation, fencing, and other physical barriers. The entire perimeter will be covered in 360 degree cameras with night vision capability combined with electrified fencing. All buildings will require an electronic keycard to enter and any forced entry will immediately sound an alarm alerting both employees as well as local law enforcement. At a minimum two security guards will be on-site at all times in addition to constant electronic surveillance. To ensure that all cannabis is safely handled in a secure fashion, restricted access areas will be installed so that only authorized employees will be able to work at specific intervals within NewCo’s cannabis supply chain.
3.6 Inventory Tracking
NewCo’s inventory tracking has been structured after a traditional pharmaceutical manufacturing companies procedures. Each aspect of cannabis is tracked including but not limited to the seeds, mothes, clones, vegetative plants, flowering plants, drying plants, curing flower, packaged flowers, green waste, extracted product, packaged extract, and extract waste. The location of each of these categories is always known within NewCo’s inventory tracking system along with the amount, weight, batch number, and cultivar that it originated from. On a daily, weekly, and monthly basis batch reconciliations will occur to ensure that the company’s digital inventory tracking system matches what is physically onsite.
3.7 Recordkeeping
NewCo has designed its recordkeeping system in accordance with Good Recordkeeping Practices (GRP). All cannabis that is shipped shall have its most relevant and required data recording such as the name of the person it was sent to, address where it was shipped to, date it was received by said entity, and specifications on what exact product was shipped. All records and documents are maintained electronically in fashion that is incredibly secure akin to the Health Insurance Portability and Accountability Act of 1996’s requirements for recordkeeping. From the moment a record is finished and filed away, it will remain digitally stored for a minimum of five years after it was made. Records will be maintained on all aspects of the cannabis cultivation, manufacturing, quality control, inventory tracking, personnel, financial reporting, etcetera. All of these records will be made public to the government upon request.
3.8 Waste Procedures
Any cannabis waste be it destroyed contaminated products, green waste, or extract waste will be recorded with information on the date of its destruction, the location of its destruction, a brief description on how it was destroyed, names of individuals who destroyed the products, etcetera. When any product is to be destroyed, NewCo will contract the minister who will give directions as to the disposal of the cannabis products.
4.0 Market Research
The global cannabis market is set to be worth $87 billion by 2024. Although NewCo will focus on production and distribution of medical cannabis, NewCo is prepared to wholesale adult-use cannabis when it becomes legal both in Zimbabwe as well as around the world. NewCo will initially target Germany, Canada, the UK, and Australia to export medical cannabis to, and explore additional opportunities as respective legislation progresses worldwide.
With global decriminalization, medical, and adult-use legislation slowly occurring in countries such as Uruguay, Jamaica, Germany, Croatia, and many more, the size of the legal cannabis industry is set to grow exponentially over the next 50 years. In general, the cannabis industry is in the growth stage of an industry’s life cycle, which is characterized by a large number of players, new technologies competing against one another, and rapid increases in the size of the market. Each municipality, county, province, state, and country has its own unique version of the cannabis industry. This is due each of these governments shaping the industry heavily through laws and regulation. The company is ready for when the laws change in its favor in each of the markets that it is following.
In terms of consumer trends, there is a huge push towards sungrown cannabis in greenhouses and in fields, sustainable cultivation and manufacturing, and certified clean cannabis. Sungrown cannabis is becoming more desired and discussed among dispensary personnel as well as the general cannabis consumer. The benefits of sungrown are three-fold. First, it is much less burdensome on the environment when compared to indoor warehouse cultivation. Second, it is easier to scale production, produce more, and reduce the cost of production per pound through field and greenhouse cultivation. Third, field cultivation is less threatened by chronic disease pressures. For example, in a warehouse, a cultivator must grow their crop within small rooms to efficiently control the environment. A warehouse is not an ideal environment to grow a crop and as such the lack of perfect air flow, humidity, temperature, and zero access to antifungal sunlight leaves many cannabis warehouse crops being struck by pathogenic fungus, bacteria, and insects. This leads warehouse cultivators to sometimes use illegal biocides or overuse legal biocides leading to lower quality of product or serious health risks to consumers.
Sustainable cannabis cultivation and manufacturing is becoming a bigger part of how a company’s brands is perceived by dispensaries and consumers. A focus on sustainable packaging, cultivation, extraction/manufacturing, and general business practices are directing consumer choices. With many cannabis businesses falling short of these basic benchmarks, the opportunity is capturable to build a trusted, sustainably-viewed cannabis brand. In terms of sustainable cultivation this involves water, electric, and general resource conservation. For extraction, this involves the elimination of toxic or unsafe solvents and zero synthetic or unhealthy additives. Sustainable packaging would be the use of degradable bioplastics or recycled paper. NewCo excels in all of these areas and will capitalize on the market demand.
Lastly, certified cannabis with a focus on zero biocide usage, sustainability, and organic methodology is becoming very important. Consumers were initially very uneducated and assumed that the cannabis they were consuming was free of contaminants both synthetic and biological as well as cultivated in a safe way that maximized flavor along with effect. This myth has been wholly dispelled. While a majority of cannabis consumers are still unaware of this fact, it is apparent that a sizable minority cares about organic methodology and wants to purchase cannabis that is grown in that manner. To support this claim, the Marijuana Business Daily surveyed consumers in the United States of Colorado, California, and Washington with 43% saying they considered the availability of organic cannabis to be critical when they decide where to shop whereas 21% of respondents said discount cannabis was critical.
4.1 Barriers to Entry
NewCo faces the current challenges as a startup cultivator to enter and succeed in the Zimbabwean cannabis industry. There will be start-up costs, federal taxes, potential distribution issues, competition from the black market, gray market, and white market, a lack of perfect information on all aspects of the cannabis industry, cannabis production, cannabis science, and the competition, zoning hurdles, as well as random externalities such as crop disease, climate change, rogue employees, and unfriendly regulatory changes.
4.2 Target Customer
There are several customers within NewCo’s target demographic. NewCo will have all of its revenue stream of through business to business sales. In the beginning, NewCo will be selling wholesale flower and distillate to governments, pharmacies, and dispensaries around the world with a primary emphasis on select countries in the European Union. Later, when the global cannabis market matures, NewCo will be wholesaling individual cannabis phytochemicals to pharmaceutical and nutraceutical manufacturers along with government and private researchers.
Within NewCo’s present day business-to-business customer acquisition strategy, it is targeting two demographics. The first demographics will buy NewCo’s products because they like the certifications, sustainable production methods, unique phytochemical profiles, and product consistency.
The second demographic will buy the flower from NewCo because of its competitive pricing. It must be noted that every cannabis business might purchase the pounds for a different price. This is a double-edged sword because there is not a single regulatory body or system that is used by every cannabis business to accurately and consistently determine quality. This creates an opportunity to create a supply chain where some customers will pay $1,800 or more and some might only pay $700 or lower.
4.3 SWOT Analysis
Strengths:
● Dedicated and passionate founding team
● Easy access to farmland and other natural resources
● Positive agricultural microclimate
● Long-term research and development potential
● Pursuing a sophisticated business-to-business demographic
● Lower cost of production with a high quality and quantity output
● Sustainable certifications
● Proactive regulatory compliance and legal framework
Weaknesses:
● Need startup and operational capital
● New to the market with this specific corporation
● Zimbabwe is an emerging market from a regulatory perspective
Opportunities:
● Huge upside with being on the ground floor of a potentially hundred billion dollar industry in the Zimbabwe and around the world
● Being one of the first serious cannabis businesses that takes advantage of research and development opportunities
● Branching into a vertically integrated model that breeds, cultivates, extracts/manufacturers, and distributes
● Carving out a place as one of the few commercial producers of phytopharmaceutical cannabis products in the legal cannabis industry
● Improve the lives of numerous patients across the world through effective medicine
● Be a positive impact on the country’s medicinal cannabis industry
● Create local, much-needed jobs for the economy
Threats:
● Decent capital requirement
● Intellectual property protection
● Zoning approval
● Licence moratoriums
● Unknown legalization outcome
● Unfriendly regulatory changes
● Climate change
● Crop disease
● Storms and high winds
● Rogue employees
● National and international competition
● Black market and gray market competition
4.4 Competition Analysis
NewCo faces competition from two main areas. The first is international competition of which the strongest would be the American, Canadian, Latin American, and European companies. It must be noted that there is serious amount of consolidation occurring between those aforementioned companies. More specifically, transcontinental mergers are happening with greater frequency creating North American-South American-European cannabis companies. Because these entities operate are incredibly variable levels of scale, sophistication, and vertical integration, it is difficult to analyze them as a monolith. However, for the purposes of NewCo success, a few points of strength and weakness must be addressed for the international players.
For strengths, they have large amounts of capital, multinational legitimacy, prefabricated plans, established vendor relationships, and qualified executive teams. For weaknesses, they are so large in some cases that they have difficulty managing their supply chain. Many of them are more focused on acquisition strategies to increase the size of their balance sheets as opposed to generating real revenue. Additionally, many of these companies have gone public with market caps that are well over twenty times what there actual revenue is. Therefore, many of them are actually not as well positioned as their market caps display them as since much of this is based on speculating as opposed to owning large amount of market share. Also, many of the international companies are not focused on true research and development as well as the manufacturing of quality products. Instead, they believe that by simply being the first to market they will be able to capture and hold on to market share. As the history of new and emerging markets shows us, this is not the case and is actually a massive opportunity for an experienced operator to take advantage of their oversight.
For the national competition, there will be licensed Zimbabwe companies in the future that will operate along side of NewCo. Their strengths will be local knowledge, easy access to local resources, and political connections. Their weaknesses will most likely be a lack of cannabis experience, an inability to sell product in the international marketplace, and being limited in their vision as well as scope.
5.0 Product Marketing
The first step of the marketing of the product will be packaging, logo design, and slogan. The packaging will focus on being sustainable as that aligns with the core value of the business as well as the target markets NewCo is pursuing. The second step of marketing NewCo as a company and its products will its website. The website will list and describe all of the current cultivars that are in production, where they can be purchased, and when NewCo expands into extraction those products will be listed on the website as well. Additionally, there will be links to NewCo social media accounts.
For an online as well as social media presence, NewCo will initially focus on having facebook and instagram accounts. Later on, a company
newsletter will be considered. Being on multiple social media platforms is key to reaching as many consumers as possible. These days individuals are only truly on one or two social media platforms. With this knowledge in mind, NewCo is only focusing on the social media platforms that will give it the highest return on investment of capital and time for its branding and market strategy.
Figure 12: Social Media Platforms
For the facebook account, the goal is to build likes, increase consumer interaction, increase brand awareness, post interesting content including articles, pictures, videos, events, and the occasional discount/digital coupons. Facebook’s paid advertising features will be incorporated once there is enough viable organic content that is created in house by NewCo that worth the attention of potential and current customers. For the instagram account, the focus is on providing unique, fun, and enticing photos that will remind customers of the brand and provide value to them.
Search engine optimization will be critical and will be used extensively to increase the chance of NewCo gaining more online traction. To ensure that the image of NewCo increases in strength and size, a public relations firm will eventually be paid to promote the brand through social media, online publications, and so forth.
NewCo will attend critical trade shows as well as industry business to business networking conference such as the Marijuana Business Conference and Expo and relevant regional events. NewCo will also sponsor events to increase its brand profile. This will be to expand the personal business network of the company for the sake of selling more product, gaining key relationships, and intelligence gathering. NewCo will eventually sponsor multiple activist organizations such as Drug Policy Alliance and Multidisciplinary Association for Psychedelic Studies along with other important industry associations. This increases the business network to allow for more deals to occur and, as is seen within the cannabis industry multiple times, you must pay to win friends who will buy as well as promote your product.
5.1 Pricing Strategy
Because of the high fluctuations in the legal cannabis marketplace and comparing those prices to what the past and current illegal cannabis marketplace, it is clear that NewCo cannot simply price itself higher than every other brand claiming high quality. In a fair and just marketplace with perfect consumer knowledge, NewCo would price itself as the most expensive flower and distillate.
This would be similar to the strategy of Screaming Eagle Winery and Vineyards whose wines retail at an average of $2,983 a bottle with a production of about 650 cases a year. This would equal a yearly gross revenue of 23.2 million dollars. NewCo has a similar philosophy in terms of quality, production, and price, however, the reality is that the future of the cannabis industry in terms of wholesale, retail, and the quality spectrum of price is unknown.
Therefore, the goal is to lower the cost of production to its absolute minimum while producing the highest quality product in terms of sustainability, knowledgeable personnel, etcetera. Through the present financial projections, the cost of production per pound of flower is $11.65 and $2,030 per kilogram of distillate. With a focus on a lower cost of production than the competition, this allows NewCo to adapt to the market fluctuations in price. Should the price rise for wholesale pounds with specific certifications and production methods then NewCo will benefit greatly, but the company is prepared for and anticipating a reduction in the price of wholesale pounds in the global marketplace over the next twenty years once medical and adult-use cannabis is legalized in every nation.
5.2 Production and Delivery
The cannabis will be grown in fields followed by either extracting it to distillate then selling it or selling the flower immediately after it has been cured to predetermined entities within each medical market that the NewCo desires to operate within. The cultivation of cannabis plants will begin with the sprouting of seeds and then the planting of these seedlings into seed incubators which are housed within a cannabis headhouse. The plants will be subjected to sex tests to remove all males and then these remaining seedling females will continue to grow into young vegetative plants which are then transplanted outside into pre-dug, pre-fertilized holes. These holes are spaced far apart to allow each plant to maximize its canopy size which increases yield while lowering any disease pressures.
Additionally, this spacing of plants allows for the efficient management of the crop since each plant is larger, the company can achieve higher yields while spending less hours in the field. The vegetative plants will begin to flower in the middle of summer and then will be cut down as they are harvested in early autumn. The harvested plants are taken to the trimming and drying building to receive post-harvest treatments. All unnecessary plant material is removed in a first pass and the plants are hung to dry. Once they are finished drying, a second manicuring pass is conducted to remove any remaining plant material before the finished flowers are placed into curing vessels for a period of time. Curing will increase the potency of the phytochemical profile while also removing impurities such as excessive chlorophyll. When the flowers are finished curing, they are placed into heat-sealed packaging where they will then either be stored or immediately sold depending on the situation.
Additionally, both fresh and cured flowers will be used for the manufacturing of distillate which is produced in parallel with the finished, packaged flower. The fresh or cured flowers are taken to the compound’s extraction laboratory where they are placed into a sealed container filled with organic, food-grade ethanol. The flowers soak until all of the crude oil has been extracted from them. The plant material is composted and the crude oil is run through a winterization process to remove any remaining lipids which reduce the quality of the product. After the lipids have been winterized, the oil taken to a machine in order to separate it from its solvent, the ethanol.
At the conclusion of this process, the ethanol is in one container and the oil is in another container. The purified ethanol is returned to storage unit to be used again and this ethanol-free oil is taken to be decarboxylated. This process will active that THC so that once it is consumed orally, the patient will be able to feel the effects without having the heat the product. After the decarboxylation process has concluded, the oil is subjected to short-path distillation system whereby the oil is stripped of any remaining impurities distilling it down to THC only. This THC distillate is then packaged and stored or immediately sold depending on the situation.
5.3 Quality Control
There are four pillars of quality control for NewCo and several regulatory guidelines as well as organizations that NewCo will be audited by. The four pillars of quality control are genetic health, contaminate prevention, phytochemical consistency, and the use of established botanical extraction techniques. Genetic health is maintained through preventative and active measures. The passive and active measures include the following. First, new seeds will be generated every two years to refresh the genetic stock from which clones are taken. Second, clones will only be taken from propagation plants which are not older than 40% of their natural lifecycle as an herbaceous annual. Third, any weak plants will be culled immediately and anaerobically composted.
Active and passive measures for contamination prevention include the following. First, the foundation of preventing any form of disease or insect is a robust, comprehensive integrated pest management program which involves environmental management, unhealthy microclimate reduction, and more. Second, extensive sanitation procedures are conducted on a daily, weekly, monthly, and yearly basis. Third, probiotic foliar and soil feeds are conducted on a tri-weekly basis improving immunity and reducing pathogenic populations.
Figure 14: Quality Control Benefits
Phytochemical consistency is achieved through the following measures. First, genetic health and contamination prevention equate to a cultivar that is consistent in its phytochemical production in addition to maximizing its genetic potential. Second, through proper certified organic soil with a proper microbiome, the phytochemical production of each cultivar will be consistent. Third, ethical independent laboratories specializing in cannabis phytochemical levels will be used for each harvest. Fourth, through good agricultural practices and good manufacturing practices, the optimal genetic health, contamination prevention, and phytochemical consistency will be reached.
Time-tested botanical extraction techniques are used to ensure that the exact and desired THC distillate is achieved every time. For example, NewCo only utilizes extraction procedures which will not only yield large amount of oil, but will do so in a way that does not risk contamination nor do these practices reduce operational effectiveness. NewCo has designed its laboratory to guarantee that it remains sanitary and easy to clean under all circumstances. Furthermore, NewCo only utilizes ingredients, solvents, and other materials in its extraction processes which qualify as pharmaceutical-grade.
In terms of regulatory guidance for quality control, NewCo will follow all of the production requirements set forth by the Zimbabwean government, the Organic Certification program, and the Biodynamic Certification program.
5.4 Personnel
For personnel in five years there will only be an estimated 12 employees that will be needed for the company to generate revenue, pay off any investment and/or debt, and begin to pay dividends on shares held. During this time, these employees hired over the five year period will either be involved with cultivation, extraction, or distribution. The focus is keeping a lean operation that maximizes the revenue for its shareholders while paying its employees a living wage.
6.0 Team
The following is an abbreviated organizational chart which will guide NewCo in its first five years of operation. Positions include the executive team, the cultivation manager with their fields hands, the extraction managers with their laboratory technicians, security guards, quality control and compliance officers, the accounting/finance team, and the sales/marketing team.
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