Edibles and Concentrates Are Proving To Be Big Business For The Right Brands
Cannabis concentrates are the fastest growing vertical of the cannabis industry, which is not surprising due to it being the key input product that is needed to make all sorts of cannabis products (i.e. edibles, vape pens, topicals, and tinctures). According to ArcView and BDS Analytics, cannabis concentrates, and cannabis flower will by equal market share by 2022. During this time period, cannabis infused products will also gain market share and we have been bullish on the companies with leverage to the burgeoning cannabis concentrate market.
Over the next year, we expect the trend toward cannabis concentrates to become even more significant and believe that cannabis infused products or edibles will be the primary driver of this. The company is highly levered to these two burgeoning verticals of the cannabis industry and we are excited about this. By 2022, the cannabis concentrate market is expected to be generating approx. $8 billion in retail sales and this represents a massive opportunity for companies that are focused on this.
Ionic Brands (IONC: CSE) (IONKF: OTCQB) is a company that we have been highlighting that has been able to penetrate some of the most competitive cannabis markets by acquiring a portfolio of leading cannabis brands. Over the next year, we expect to see the company record strong growth due to the expansion into strategic cannabis markets. With leverage to markets like California, Nevada, Illinois, and Washington State, this is an opportunity to be watching.
During the last month, Ionic Brands has been able to significantly advance its fundamental story by completing the acquisition of Washington state based Zoots Premium Cannabis Infused Edibles. We expect the Zoots acquisition to quickly prove to be accretive and this is a transaction that we have been bullish on for the following reasons:
- The acquisition enhances the types of cannabis products that fall under the Ionic Brands portfolio
- Zoots has attractive leverage to strategic cannabis markets and this provides Ionic Brands with an easy avenue to enter these markets
- There is significant human capital associated with the transaction and we are favorable on the additions that are being made to the Ionic Brands team
- The terms of the deal were favorable for Ionic Brands and the acquisition was completed for US$855,000 of cash and approx. $10 million of common stock
Ionic Brands has benefited from being able to use its stock as a currency to acquire businesses like Zoots and we expect to see additional strategic acquisitions announced by the company in the future. Ionic Brands is highly focused on creating a leading portfolio of consumer-focused cannabis concentrates and infused products.
Zoots Enhances the Entire Ionic Brands Cannabis Portfolio
Zoots has been nothing short of a success story and we expect to see Ionic Brands support the growth of the leading cannabis infused product company by entering new markets and increasing production capacity. In 2019, Zoots expects to generate approx. US$3.0 million of revenue with US$360,000 of EBITDA.
One of the reasons we are favorable on Zoots is due to the way the management team has been able to differentiate the products from the competition. The products feature cannabis oil derived from the Zoot’s proprietary Cypress Extraction system and are blended with other premium ingredients to deliver a safe, reliable and pleasant experience. Zoots emphasizes on product safety, quality and consistency, and offers products in serving sizes as low as 5 mg THC enabling the consumer to easily manage dosage and control over serving size and effect. We find this to be significant and believe that this focus will support the success of the product line.
According to a report published by Zion Market Research, the global cannabis edibles market was valued at approx. $2.3 billion in 2018 and is expected to be valued at approx. $11.5 billion by 2025. We are bullish on Ionic Brands’ leverage to the cannabis edibles market and expect the acquisition of Zoots to prove to be a major value driver on a going forward basis.
Zoots Strengthens Ionics’ Management Team and Value Proposition
The acquisition of Zoots represents an important milestone for Ionic Brands and this is an asset that we have been excited about. Zoots Premium Cannabis Infused Edibles are available at licensed marijuana retailers in Illinois, Washington, Colorado and Massachusetts. Over the next year, we expect to see Zoots secure distribution in additional cannabis markets and will monitor how the team is able to execute on this.
One of the reasons we are favorable on Ionic Brands’ ability to execute is due to the appointment of Dan Devlin, a founder of Zoots, as the Chief Operating Officer of Ionic Brands. The Zoots acquisition will allow the company to break into the burgeoning cannabis infused product market across the US and we expect to see Dan Devlin play a key role in the success of the entire operation.
Over the next year, we expect to see Ionic Brands recognize major opportunities across the US and expects Zoots to play a key role in the success of the business. Zoots’ product portfolio includes drops, gummies, energy shots and hard candies manufactured to offer consistent and reliable dosing. Zoots products expands the company’s current product line and is expected to increase the company’s market share in the cannabis retail and wholesale industry.
Ionic Brands has been working closely with the Zoots leadership team to integrate companies and transition the Zoots line of handcrafted and trusted edible products. The company has been highly focused on the cannabis concentrate opportunity, especially as it relates to vape pens, and we are bullish on the potential synergies that can be recognized from this transaction.
An Execution Story in the Making
Only a few weeks after the closing of the Zoots deal, Ionic Brands has already made a major impact on the business and announced a strategic relationship with PharmaCann LLC. Under the agreement PharmaCann’s Illinois dispensaries are exclusively launching Zoots Cannabis Infused Edibles and will be available this month.