The Business of Cannabis: Auxly

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By Jason Gorber

As part of our Business Talks with Canada’s top cannabis CEOs, we had the pleasure of speaking with:

Hugo Alves

President, Auxly Cannabis Group

Toronto, Ontario

What does your company do? Our company is a vertically integrated company with eleven cultivation projects that we either wholly own or we partner with other people on... We take that agricultural product and turn it into other derivative products, like chewables, chocolates, lozenges, capsules, things like that. We have some proprietary brands that we distribute those products under. To sum it up, we’re a cannabis products company that owns our own cultivation and our own manufacturing.

How have you seen the industry change? It’s a highly dynamic industry, so there’s change all the time. The biggest change at a macro level is really the regulatory one that took this from being limited to medical use to being expanded to all adults for non-medical or recreational use. We’re really heading into cannabis legalization 2.0, where the government later on in the year is going to open up the market to derivative products.

Was it a bigger jump from illicit to medical or from medical to consumer? I would say medical to consumer. From illicit to medical was really driven by really ill people that took it upon themselves to fight the government for what they believed was an infringement of their constitutional rights. You’re talking about [a] total registered patient base of about 350,000 patients. Now, you’ve got any adult in Canada that can access cannabis legally if they choose to. It’s also a much more complicated supply chain, logistically and technically speaking. The medical market is pretty easy – a consumer registers with you, they go through a small process, and then they buy, and you ship direct to them. Now you have provincial intermediaries inserting themselves at the wholesale level. You’ve got a myriad of different distribution systems from province to province and retail players from province to province. It’s a bigger jump, commercially speaking, operationally, and, I think also, socially speaking.

How would you like to see the industry change further, and how are you going to contribute to that change? There is a progress towards the concept of cannabis being a wellness product. Right now, it seems like there’s almost a dichotomy. If it’s medical, you need this because you’re ill. If it’s recreational, you want to use this because you want to get high. I think there is a massive middle segment of consumers in the health and wellness market. They’re not sick, they’re not trying to cure themselves or alleviate conditions, and they have no real interest in getting high, so to speak. What they want is they want added functionality, they want health maintenance, they want an experience. Research, I think, is going to be increasing in importance... The government is looking for industry and for academia to do further research so they can make real evidence-based policy decisions and eventually introduce those types of products to the market.

So, rather than as a medical drug or drug to get high, what type of product would be equivalent? You’re not taking omega-3 to cure yourself of anything. You’re not trying to manage your pain through omega-3. You’re taking it because it’s been shown that it supports a healthy lifestyle and there’s some benefit to it. That’s where I see [the cannabinoids] market going. Why don’t we take other nutraceuticals that are out there that we know have some health benefit, whether it’s melatonin for sleep, whether it’s probiotics, whether it’s chamomile, fish oil, that sort of thing, and see if there are additional synergistic benefits that could be attained by the addition of cannabinoids and then put those out as a wellness product?

What do you see as the biggest challenge or roadblock? There’s lots of them! The biggest challenge is really information. Canadians are very restricted in terms of what we can say and do and offer to consumers by way of information on the products... I look at Canada’s current leading position and whether or not we can actually maintain it. Are we going to be able to differentiate our products sufficiently? In other jurisdictions, they’re going to be able to market and get information out in a much less restricted fashion... We’ve seen this in the tobacco industry. At some point, the regulators are going to really focus on how are people communicating their message, and, if they take the same type of rigor as they take with tobacco, it will be highly restrictive.

What do you see as the biggest misconception of this industry? The biggest misconception is the notion that you can grow really high-end cannabis in large industrial-scale facilities. Cannabis cultivation is, in and of itself, difficult. Right now, you have supply shortages, so people get away with putting out whatever they can into the market.

Where do you see the industry in five years? The industry in five years will be like 30 years or more in a regular industry. With the market for dried cannabis, there will be tighter parameters about who can participate based on quality. I think, overall, you’ll [have] cannabis as a wellness product occupying the largest market share of its use. You will see derivative products eat into the dried cannabis market significantly, and I think the dried cannabis market will be much more competitive. I think the factory farms produce feed stock for derivative products, and the guys who produce cannabis not as a commercial endeavor but as a passionate, artisanal product, those producers will thrive. What’ll be interesting to see is will one of those producers or any of those producers be able to scale those operations in a way where they can supply the demand without losing the quality. To date, I can’t think of an example where they’ve done that.