Demand for Craft Cannabis

THE DEMAND FOR CRAFT CANNABIS

In 2018, with estimated sales of $5.9 billion 8 , the illicit market accounted for almost 80 percent of the Canadian cannabis market. The legal market was estimated at $1.2 billion and is currently plagued by a lack of distribution infrastructure.

Critical errors were made by the first wave of large licensed producers, namely the retrofitting of existing facilities and the building of overly large grow areas, combined with underestimating the stringent climate control requirements. These factors have caused high levels of crop failure. Due to a limited number of cannabis professionals, new facilities were built using experience from other industries where cannabis' unique requirements were not well understood. As a result, there is a shortage of high-quality cannabis products. Grass Roots has the opportunity to capitalize on opportunities that other LP’s and large publicly-traded companies have failed to capture. Organic cannabis fills a market gap that has been left void by the corporate first-movers that currently dominate the Canadian marketplace. Operations built for mass production are inherently unable to satisfy the demand for high-quality products.

As a testament to the value of this niche, Broken Coast, Whistler Medical and CannaFarms, three small-scale craft cannabis operations, have been acquired for $230M 9 , $170M 10 and $130M 11 , respectively. Furthermore, there are estimated to be about 6,000 craft growers in British Columbia alone, a region that has a strong history of cultivating cannabis and is known for its world-renowned ‘BC Bud.’

Licensing just 15 percent of craft cultivator operations could legitimize nearly $3 billion in cannabis sales in only two years 12 .

8 “Canadians spending $5.9B on pot, mostly from black market” Bloomberg, March 2019. 9 “Aphria buys Broken Coast Cannabis in $230 million stock and cash deal” Financial Post, January 2018. 10 “Aurora Cannabis buying Whistler Medical Marijuana in deal worth up to $175 million.” Financial Post, January 2019. 11 Press Release: VIVO Cannabis Inc, 2018. 12 “Freeing craft cannabis from 'grey market' worth $3 billion to B.C: report” Vancouver Sun, June 2019.

THE DEMAND FOR CRAFT CANNABIS

Quality cannabis demands a premium price point, and reflects the consumer demand for a high-quality craft product 13 . According to the Craft Cannabis Association of BC, craft growers give the consumer healthier choices, the community benefits from the culture and the economic advantages of the operation, and the product is sustainable into the long-term.

HEALTH Local and small-scale craft cannabis production means consumers are directly connected with the producers of each and every product, ensuring high quality practices, broader range of choices and unique medicinal solutions.

COMMUNITY Canadian communities are poised to benefit from a thriving cannabis culture and tradition. Local socio-economic activity associated with the industry creates a strong foundation for community development. ECONOMY The cannabis industry is worth billions of dollars to Canadians. At this moment in time, provinces and municipalities alike have a powerful opportunity to sustain and diversify the economy with meaningful employment and substantial tax revenues.

SUSTAINABILITY Cannabis is a renewable agricultural resource. Post-prohibition allows for further expansion of innovative applications, creating products and that aids in the transition toward a regenerative society.