Large Canadian Cannabis Producers Attracted To Small-Batch Cultivators

Growing consumer appetites for premium craft cannabis products have led large Canadian marijuana producers to turn to small batch cultivators. To that end, some large producers have partnered with craft companies, others have bought the craft companies outright, and some are buying craft cannabis in the wholesale market to then sell at a retail markup.

This trend is partially borne out of necessity. Mass producers spent billions of dollars from 2018 through 2020 cultivating cannabis. The vast majority of it turned out to be unsaleable. Canadian LPs destroyed more cannabis than they sold.

Market experts predict acquisitions of craft growers will increase in the coming months. Most recently, The Valens Co.’s pending acquisition of craft firm Citizen Stash Cannabis Corp. for $42 million (USD) is in the spotlight among others. Entourage (formerly WeedMD) will acquire craft cultivator CannTx Life Sciences for CA$17.5 million. Ontario-based mass producer Canopy Growth recently brought the 7 Acres Craft Collective under its wing when they finalized their acquisition of Supreme Cannabis Co., valued at roughly CA$435 million. These are just a few examples of what’s on the horizon.

“We could see some acquisitions in this area, premium/craft companies,” said David Kideckel, head of strategy and capital markets for Winnipeg, Manitoba-based Delta 9 Cannabis. “Where LPs are looking to take them for a test ride: ‘Are these brands selling, and if so, can we outright acquire them and make them part of the overall LP strategy.’”

Daffyd Roderick, the Ontario Cannabis Store spokesman, believes craft cannabis is “encouraging the rest of the industry to build brands based on fresh products and farm-to-consumer artisanal practices.” He continued that, “Since the launch of the Ontario Cannabis Store craft designation, it is clear that consumers have responded positively to craft and small-batch products.”

Not unlike wine, beer, and spirits, loyalty plays a large part in the desire for premium product. Delta 9 has 13 craft partners, and the Cypress Craft brand is the bestselling among them.

“With value brands, there really is no loyalty (among consumers),” said Kideckel. “When it comes to craft brands, or premium brands, consumers typically become loyal to that brand, assuming there is more consistent quality every time.”

For George Scorsis, interim CEO of Entourage Health Corp., the emphasis on small-batch production speaks to an industry-wide focus on quality. “This is the first time we’ve seen in the Canadian market that both the consumer and the capital markets have converged to ask for exactly the same thing. It’s about quality,” Scorsis said. “You need to maintain the components that make it special and unique. And you should actually not look at yourself as the acquirer. You should look at yourself as someone who has the opportunity to integrate new and important qualities into your business.”