Advertisement
U.S. markets close in 4 hours 1 minute
  • S&P 500

    5,255.11
    +6.62 (+0.13%)
     
  • Dow 30

    39,783.90
    +23.82 (+0.06%)
     
  • Nasdaq

    16,408.37
    +8.85 (+0.05%)
     
  • Russell 2000

    2,132.14
    +17.79 (+0.84%)
     
  • Crude Oil

    82.57
    +1.22 (+1.50%)
     
  • Gold

    2,234.90
    +22.20 (+1.00%)
     
  • Silver

    24.92
    +0.17 (+0.70%)
     
  • EUR/USD

    1.0804
    -0.0026 (-0.24%)
     
  • 10-Yr Bond

    4.1850
    -0.0110 (-0.26%)
     
  • GBP/USD

    1.2633
    -0.0005 (-0.04%)
     
  • USD/JPY

    151.3300
    +0.0840 (+0.06%)
     
  • Bitcoin USD

    71,318.80
    +2,354.66 (+3.41%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,965.33
    +33.35 (+0.42%)
     
  • Nikkei 225

    40,168.07
    -594.66 (-1.46%)
     

Pricey pot backed by Drake producer ‘40’ risks slim demand, knock-offs

At a time when the high price of pot is among the biggest headwinds facing Canada’s legal cannabis sector, Max Zavet is willing to spend nearly $40 per gram on a special occasion stash. His Toronto-based luxury cannabis brand is based on the hope that he’s not alone.

Robes plans to start selling its high-priced product in the spring. The privately-held company will specialize in “exotic and rare” strains grown in Canada by MJardin (MJAR.CN), a Denver-headquartered producer with over half a million square feet of cultivation capacity in Canada and the U.S.

According to Statistics Canada’s crowdsourced data hub, Canadians spent $6.94 per gram on average across the legal, illegal, and medical markets. Zavet said his cannabis will be priced in the $20-per-gram range, depending on retailer markup. That ranks it among the most expensive strains sold online by the government-run Ontario Cannabis Store (OCS).

The idea behind Robes is to make top-tier plant genetics refined for years in the black market and medical system available to recreational consumers. The company plans to focus on dried flower at first before gauging demand for extracted products and vapes.

Zavet expects buyers will be connoisseurs disappointed by the quality of early mass-produced legal pot. Maybe they’re looking for a status symbol to let their fellow weed snobs know they’ve arrived. Either way, it’s a play for the luxury cannabis consumer in a price-obsessed market.

“Our target demographic is people like myself who are looking for the finer things in life, have some disposable income, and are looking for the best product out there,” Zavet told Yahoo Finance Canada. “I know there are a lot of people like me.”

Max Zavet, CEO of Robes, speaks to Yahoo Finance Canada in the company's Toronto office. (Yahoo Finance Canada)
Max Zavet, CEO of Robes, speaks to Yahoo Finance Canada in the company's Toronto office. (Yahoo Finance Canada)

Robes is new, but Zavet is the equivalent of a veteran in the new legal pot industry. He co-founded Emblem Cannabis, an Ontario-based medical producer that went public on the TSX Venture Exchange in 2016. The company was acquired by Aleafia Health (ALEF.TO) two years later in an all-stock deal valued at $173 million. He provided early advice to Fire & Flower (FAF.TO), a retail-focused cannabis company that now has 38 locations in four provinces and the Yukon territory. He also acted as an advisor to the extraction company MediPharm Labs (LABS.TO).

“I came from a legal background and made partnerships who saw it more on the short term and through a public market lens,” Zavet said. “Now, I'm just focused on building a real business with real revenue and profitability. If we get acquired in five years, that would be amazing. But in no way is this a public market play.”

Robes’ largest shareholders include Zavet and Noah “40” Shebib, the producer behind Drake’s critically-acclaimed catalogue of albums. The pair worked closely over the past year, and have informally promoted the brand online for several months now. The company expects to submit its product line to the OCS in March for approval.

Noah “40” Shebib is among Robes' largest shareholders. (Provided)
Noah “40” Shebib is among Robes' largest shareholders. (Provided)

Canada’s biggest cannabis company by market value is also looking to cash in on Canadian hip hop fame. Canopy Growth (WEED.TO)(CGC) announced a joint venture with Drake himself in November called the More Life Growth Company. The Canopy Growth-Drake collaboration has not revealed pricing for its products. But if the cost of the rapper’s clothing line is any indication, it won’t be a bargain.

Jon Kamin, chief revenue officer at the cannabis data firm Lift & Co. (LIFT.V), sees a number of hurdles for brands looking to capture the high end of the pot market.

“The receipt data that we collect through our platform would suggest the $20 price probably is a very significant breakpoint,” he told Yahoo Finance Canada. “Too many producers have had to take their brands upmarket and look for premium consumers at premium price points. The level of competition, I would characterize as outstripping demand.”

Zavet points to more mature markets in Colorado and California, where stores are stocking single pre-rolled joints infused with concentrates and wrapped in cannabis leaves for US$50 each. He’s personally paid US$100 for an eighth of an ounce (about 3.5 grams) of high-quality bud.

Kamin predicts significant spending will be required to build brand awareness if luxury cannabis producers plan to command such a considerable premium over legal alternatives and high-quality options on the persistently strong black market.

Given the tight government restrictions on using celebrities to promote cannabis, it’s probably going to take more than star power for brands to succeed.

Andrew Udell of the independent cannabis analysis team TheCannalysts agrees the pool of buyers could be perilously small.

“The demographic is white collar upmarket, infrequent users, the status seeking sorts. Frequent users might do it as an occasional treat. But like any ‘luxury brand,’ I doubt there’ll be much impact in the way of market share,” he told Yahoo Finance Canada in an email. “Cannabis isn’t like a car. Paying twice as much for cannabis doesn’t mean you’ll get twice the quality. It’s also a relatively subjective experience.”

The look, feel and taste of luxury

Tucked away in a small fridge in Robes’ downtown Toronto office are sample strains grown under a medical licence with names like Orange Daquiri, Peanut Sundae, Ice Cream Cake, and Wedding Cake. The names won’t stand out in a market saturated with outlandish strain titles.

Zavet is banking on his vibrant purple, orange and red pot creating a visual impact. He’s confident consumers’ other physical senses will take care of the rest.

Getting people stoned with a tiny pinch of weed is one selling point. THC is the main psychoactive ingredient in cannabis. Some of Zavet’s strains hit the upper end of what’s on the legal market today at about 25 to 30 per cent. However, he’s quick to point out that luxury cannabis is about more than delivering an extra-potent high.

The terpenes in his cannabis, the essential oil molecules that determine flavour and aroma, are designed to dazzle the nose with notes of lemon, vanilla, melons, nuts and pine. Terpenes also support other cannabis molecules to deliver therapeutic effects like pain relief, nausea relief, relaxation and sleepiness, in what weed buffs call “the entourage effect.”

Zavet estimates average terpene counts in Canada’s legal market range between about 0.5 per cent to one per cent, versus between 2.5 and 3.5 per cent for luxury strains.

“I've really learned what makes a truly premium product. I know that word gets tossed around a lot these days,” Zavet said. “For the most part, these products unfortunately are not available in the Canadian legal space.”

Riding the famous bull

Shebib, who uses cannabis to treat MS symptoms, favours a storied strain now under the Robes umbrella called BLLRDR (pronounced bull rider). A video posted to his Instagram account on Friday features testimonials from Cypress Hill rapper B-Real, comedian Dan Aykroyd and Joe Mimran, founder of Joe Fresh and Club Monaco.

BLLRDR dates back to the early 2000s, and a grower named Jef Tek. It’s said to have sold for between $400 and $500 per ounce on the black market.

“There is only one strain that I care for in Canada. It’s called BLLRDR,” Shebib said in the clip.

He credits the strain for allowing him to remain creative and produce music. In the video, Aykroyd talks about the excitement when the pricey, exclusive strain would show up at parties. Mimran praises the pot for establishing a premium brand long before legalization.

“Joe (Mimran) is an advisor, Dan (Aykroid) we met and is a big fan of the strain. We were lucky to get him to help out a bit,” Zavet said, adding that Canadian media mogul Moses Znaimer “helped out” as well.

While selling a celebrity-backed strain with legendary black market roots has obvious benefits, small-scale growing is fraught with challenges.

Zavet’s rare strains are harder to cultivate and yield flower less than other more common ones. Cost of production will remain high until he can scale up operations. The company said it could pivot to a more affordable product mix if demand is weaker than expected, but the expectation for now is to cater to upscale buyers.

There could be another problem. It’s one all too familiar to makers of luxury goods from high-end purses to, to cognac, to smartphones.

“If one product became notable, I’d expect knockoffs would emerge,” TheCannalsyts’ Udell said. “Cultivars (samples) can be tested for chemical composition, and effectively ‘replicated' through breeding.”

Knockoffs could either hurt sales, or build awareness and stoke demand for the real thing. In any case, Zavet is hoping quality, scarcity and fame will breed demand among well-heeled cannabis lovers.

“There isn't a lot in the premium space in the market. Some of the products that are purporting to be premium are unfortunately not,” he said. “If there are competitors to us, they ultimately fall short.”

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

Download the Yahoo Finance app, available for Apple and Android.

Advertisement