The LP CEO Survey

THE LP CEO SURVEY:

Cannabis Executives Feeling Good About the Future

An Ample Organics and Business of Cannabis survey found that companies are optimistic about their growth prospects, but there are risks to keep in mind.

As cannabis legalization expands, in which of the following actions will you be engaging?

With adult-use recreational cannabis soon to become legal, Canada’s licensed producers appear optimistic about the opportunities ahead. According to a new Ample Organics and Business of Cannabis LP, C-suite survey, 91% of businesses feel confident about revenue growth over the next year, while 85% are confident their business will grow over the next three years.

Most of the 35 C-suite executives who took the survey also see big opportunities for their business. Eighty-five percent said

85%

Export cannabis to other markets

41%

Import cannabis from other markets to fill demand

82%

Enter supply agreements to provide product directly to retailers

65%

Expand indoor growing facilites at our current location

59%

Add indoor growing facilites at additional location

47%

Enter supply agreements to receive product from other LPs

32%

Enter supply agreements to provide product directly to other LPs

What do you view as the greatest risk to the industry’s overall success?

47%41%

50%

32%

24%27%

3%

12% 15%

18%

6% 6%

Shifting Federal regulatory environment

Variable Provincial regimes

Consumer acceptance

Product safety

Consistent quality assurance

Undersupply of product

Oversupply of product

New entrants into marketplace

Black market options for consumers

Global competition

Negative stories around legalization’s impact

Lack of strong industry cohesion

that exporting cannabis to other markets was a trend to tap into, while 82% said the same about entering supply agreements to provide product directly to retail outlets.

“All in all the outlook is positive,” says John Prentice, president and CEO at Ample Organics, a company that develops enterprise planning resource software for the cannabis industry. “There’s a great opportunity here. It may be a little wild and unpredictable in the early days, but

like any new industry, no one can predict what’s going to happen.”

Safety first One encouraging sign is that 97% of survey respondents said the industry is taking sufficient steps to ensure responsible and safe cannabis usage among Canadians. That does contradict an earlier Business of Cannabis/ Nanos Research poll where only 17% of Canadians said the same. Prentice

Is the cannabis industry taking sufficient steps to ensure safety and responsible usage among Canadians?

Agree Somewhat agree Somewhat disagree Disagree Unsure

3%

21%

76%There is a signifcant disconnect between the industry and the Canadian public around perceptions of ensuring safety and responsible usage.

18% 17%

24% 25%

16%

LP CEO Survey April 2018

Nanos Research Public Opinion Poll December 2017

isn’t surprised that there’s a disconnect between the industry and the public.

“The Canadian public hasn’t been fully exposed to the systems that prevent cannabis from getting into the hands of people who shouldn’t have it,” he says. “That will be explained more when cannabis hits retail.”

Still, there is one big concern that relates to safety and the industry’s growth

prospects. Half of those surveyed said that black market options for consumers remain the biggest risk to industry success. The illegal market has been thriving for so long, and it’s so big, that it’s unlikely it’s going to close up shop when cannabis becomes legal, says Prentice. It’ll still be selling its product at cheaper rates, too, when tax and overhead to build a legal grow-up comes into play.

What are your top areas of investment?

91%

Marketing & Branding

97%

Building team and adding employees

87%

Product Development

87%

Enhancing current OR adding additional facilities

72%

Reseach & Development

62%

Quality Assurance

50%

Environmental Testing

50%

Corporate Acquisition

“The underground economy has massive production capabilities and competitive pricing,” says Prentice. “Legal producers have to be better and cheaper and that’s going to have to happen through product variety and innovative delivery methods.”

Other risks include a shifting regulatory environment and variable provincial regimes, with 47% and 41% citing these as challenges, respectively, but Prentice thinks that regulatory issues will work themselves out.

Growing investments Clearly, there will be some ups and downs in the first few months or even years after legalization, but most companies feel confident enough to make investments in their business. A whopping 97% of survey respondents said they’ll likely make a major investment of at least $1 million into their company over the coming year.

When asked what areas of the market they’ll invest in, 97% said hiring, 91% said marketing and branding, while 88% said

What would survey respondents like the public to know about the industry?

The public needs to be educated that the way LPs grow cannabis is not the way it is grown for the black market. Reassure the consumer that the Canadian LP system is strictly regulated and QA is of the highest standards.

Legalizing non-medical use doesn’t mean that there aren’t hundreds of thousands of people in Canada for whom cannabis isn’t a consumer choice, it’s a medical need and should be treated like other medicine.We produce safer products with more standardization than the black market and better value.

enhancing facilities, adding additional facilities and product development.

It would help, though, if the government were clearer on what it plans to do. Just half of the C-suite executives surveyed think there’s adequate support coming from the government around getting companies prepared for legalization. Prentice agrees that communication between industry and government has been lacking, but it’s starting to improve.

“It’s about time more than anything else,” he says. “Health Canada has indicated that it will be more collaborative with the industry going forward and there are indications it’s doing that.”

Ultimately, success will happen for the companies that can move quickly and have a compelling product lineup. It’s no different than in any other industry. “It’s the same thing as building cars or shoes,” he says. “It’s just a different product.”