Exclusive Interview with Indiva Co-Founder, CEO and President Niel Marotta
For Indiva (TSXV: NDVA) (OTCQX: NDVAF), this September marks the one-year anniversary of the introduction of Wana Sour Gummies into the Canadian market. Since then, the company has achieved more than 50 percent market share in the gummies category, according to Co-Founder, CEO and President Niel Marotta. Marotta reconnected with New Cannabis Ventures to discuss deepening distribution, new product categories and competing in the Canadian market. The audio of the entire conversation is available at the end of this written summary.
Canadian Operations
Indiva has broad distribution across most of the Canadian market; it has products in nine provinces and two territories. The company is hoping to list products eventually in Prince Edward Island and Nunavut.
When looking at units sold on a monthly basis, Indiva is third, behind only Canopy Growth and Tilray, according to Marotta. The company’s goal is to continue to go deeper into all provinces.
Last year, the company announced an agreement with Medical Cannabis by Shoppers Inc. The agreement comes with the validation of working with an established pharmacy, and it allows Indiva to sell its edibles into the province of Quebec to patients who have prescriptions with Shoppers, according to Marotta. Thus far, distribution through this agreement accounts for less than 5 percent of the company’s revenue, but Marotta expects this could grow significantly as regulations evolve.
The company currently has about 150 employees, most of which are located in London, Ontario. Indiva added a new director, Russell Wilson from Prairie Merchant, last year, and it has fleshed out its team on the sales side. The company is putting more boots on the ground to deepen its coast-to-coast distribution and strengthen its relationship with key accounts.
Consolidation is a hot topic in the cannabis space. Marotta considers Indiva’s stock as significantly undervalued; he doesn’t think the company has the currency to be an aggressive acquirer at this time. But, he does expect that other LPs will be interested in acquiring Indiva. The company has a considerable market share in the edibles space, making it an accretive and complementary option. The company will examine and discuss with its board any offers that do arise.
A New Product Category
Indiva entered the baked goods category with Slow Ride Cookies. Thus far, the edibles category has been relatively small in the Canadian market, with baked goods being a smaller subcategory. But, edibles are relatively new in this market. Looking to more mature U.S. markets, edibles can account for 10 percent or more the market, with baked goods taking 10 to 15 percent of the edibles category, according to Marotta. He hopes that Indiva will grow the baked goods category, as well as its top line.
While baked goods represent a new category of Indiva, the company does not necessarily want to be in all product categories. Any new areas it does enter will be with brands that the team feels offer something unique. Ultimately, Indiva is focused on being the leader in the categories it does pursue rather than being in every product segment.
CBD Outlook
Indiva is a player in the CBD space. It has launched chocolate, gummy and soft gel CBD products. It is also launching a multipack of Wana gummies in a 10:1 format, allowing for more gummies in a package without violating the 10 mg THC cap. While CBD products are outsold by THC products, Marotta sees an opportunity for innovation and growth in the CBD space.
International Opportunities
The company’s business plan is focused on the Canadian market, but it does keep a watchful eye on international markets. The company does not necessarily envision becoming a direct U.S. play, even with federal legalization, but it would hope to strengthen its relationships with U.S. brands like Wana and Bhang Chocolate. The Indiva team is also considering the demand in European markets.
Investors and Funding
Earlier this year, licensed producer Sundial made a $22 million strategic investment in Indiva. Since making that investment, Sundial closed on the acquisition of Inner Spirit Holdings, which owns the Spiritleaf retail dispensaries in Canada. Having exposure to that retail chain contributes to Indiva’s product distribution.
Indiva ended its second quarter with $3.4 million in cash. The company has $11 million in senior debt outstanding with Sundial, but that is not due for two-and-half years, according to Marotta. He sees Indiva’s funding needs as relatively minor. The company is aiming to be cash-flow-positive before the end of the year or by early next year.
The company’s facility is fully built and fully licensed; Indiva does not need to fund any large CapEx projects. Indiva does intend to allocate some capital to automation, which will ultimately help to reallocate labor and improve on margins.
If Indiva does need to raise more capital at any point, it would result in a solid use of proceeds that creates shareholder value. The team may also look at opportunities to improve the balance sheet in an accretive fashion, according to Marotta. Insiders own more than 10 percent of the company; the team is sensitive to dilution and carefully watches the share price and structure.
The Second Half of 2021
Marotta anticipates that the second half of Indiva’s year will be better than its first. The company has achieved $15.3 million in net revenue thus far, exceeding total net revenue in the fiscal year 2020. In addition to net revenue growth, Marotta expects solid margin improvement in the second half of the year due to the falling price of distillates.
Indiva has achieved its more than 50 percent market share in the gummies space after just one year of having products in the market, and its chocolate market share is around 40 percent, according to Marotta. The company consistently introduces new products with its licensees, helping to drive its market share and revenue.
Many product categories in the Canadian market are crowded, and Marotta anticipates that the competition will only continue to increase. Indiva will defend and aim to grow its market share in Canada with new products in its chosen categories.
While federal legalization in the U.S. is a big topic of conversation, Marotta does not think that the Canadian market is anywhere near played out. He expects there is room for the market to double or triple and room for the edibles category to do the same, which puts Indiva in a position to pursue significant growth as well.
New Cannabis Ventures provides a sponsored Investor Dashboard for Indiva. Listen to the entire interview:
