In the increasingly crowded marketplace of cannabis products, it helps to have experience and innovation on your side.
Bhang Inc (CSE:BHNG, OTCQB:BHNGF), an award-winning company famous for its gourmet chocolate and other branded products, has both.
The company is a pioneer in the infused edibles market, launching more than 12 years ago in Oakland, California. While new companies navigate their way around constant legislative changes and respond to evolving consumer tastes and data, Bhang has a distinct advantage.
The company's president and CEO, Jamie L Pearson explained that the 12-year-old brand earned its wisdom through the experience of successfully delivering millions of cannabis products that were, and continue to be “delicious, safe, and consistent” for over a decade.
“I can think of only five brands with over a decade operating in a multi-state environment,” Pearson said in an interview with Proactive. “Being a first-mover is an advantage. But knowing when to get there first versus knowing when to let others take the lead and make expensive mistakes, is the key. Bhang has experienced the growing pains of several new markets and sudden legislative changes over the years, which helps us assess the proper strategy for approaching a new market or a new product.”
However, the company’s success goes beyond its products.
“Bhang’s low cap-ex (capital expenditure) and op-ex (operating expenditure) business structure coupled with licensing relationships among strong operators such as Trulieve, Cannavative, Chocolate Cartel, and Indiva, allows us to continue innovating and moving toward federal legalization without taking big, unnecessary risks in times of uncertainty or down markets,” Pearson said.
Continued innovation and providing licensees with cutting-edge products have also contributed to Bhang’s longevity, as it continues to evolve with the industry and the world in general.
“A great example is transitioning into a consumer-facing, e-commerce strategy that has grown in response to coronavirus (COVID-19) and loosening banking regulations,” she said. “More and more people are shopping for everything on their phones. The number of transactions in cannabis that take place on smart phones is staggering. Responding to this shift in the world, which has rippled into our industry, is a no-brainer.”
Developing fast-onset edibles using nanotechnology
As tastes and habits evolve, so too does technology, according to Pearson. There is growing demand for fast-onset edibles and the nanotechnology used to develop them is improving. She added: “We believe most cannabis edibles will be utilizing nanotechnology to address the main downside of edibles, which is waiting an hour or more for the body to process THC through the liver."
The vast majority of nano-THC is water-soluble. Chocolate has no water. It’s also incredibly bitter tasting which is a hallmark of the fast-acting experience: good timing, terrible taste, Pearson said.
"Bhang waited until a fast-acting nano-THC product was developed that works well in fat (ie cocoa butter) and tastes great," she said. "We wanted our fast-acting chocolate to taste like a normal Bhang product, delicious, plus feature the rapid-onset effect of smoking flower. It’s a big difference whether THC crosses the blood-brain barrier (e.g. in smoking) versus being processed through the liver (e.g. in edibles)."
The nano-technology makes the THC particle so small, it passes through the blood-brain barrier in mucus membranes like smoke, which Pearson said will make Bhang's edibles a complete game-changer.
"Bhang is ideally positioned to lead this charge,” she said. “We’ve been innovating fast-onset edibles because we see their potential, but this is an example of a time we waited for others to make their mistakes. We waited for the right technology to come along that allowed us to put delicious, safe, and consistent fast-onset products into the market. We kissed a lot of frogs in the process of finding the correct nano but now are excited to get (these products) launched. They all taste great, hit fast, and are super consistent. All of the uncertainty of edibles, when they will hit, how long they will last, etc ... it’s all solved. We are so pleased with the result,” she added.
Three-legged stool strategy to grow revenue: Stores, Shelves, Sales
Pearson said Bhang has a multi-pronged strategy aimed at growing revenue into the future.
“Firstly, the company is using our brand cache in California and Colorado to operate in markets that allow us to capture more stores and shelves – which equals more sales revenue. In California, we are pursuing a direct-to-consumer strategy that will allow Bhang to sell directly to consumers who order cannabis delivered to the front door from their smartphones. Additionally, Bhang consumers will soon have the option of utilizing a subscription service to make sure our products are always in the cupboard,” she said.
Both the direct-to-consumer and subscription models are a way for Bhang to use its tools to drive more business and add value for its licensee partners, Pearson added.
Secondly, Bhang is aggressively adding additional states, and utilizing the lessons learned in California and Colorado to enhance its licensee-based relationships and revenue.
“Once we have the direct-to-consumer system running smoothly, we plan to expand these capabilities to our licensee states,” Pearson added. “Increasing our footprint adds stores, shelves and sales naturally. This is low-hanging fruit for Bhang.”
Finally, Bhang will continue to innovate new products to capture more shelf space. The latest additions include a fast-acting hard candy 'fruit drop', a fast-acting hot cocoa, and a unique Bhang-branded pre-roll and flower … not to mention fast-acting chocolate.
“Chocolate is very seasonal. Conversely, hard candy is perfect for hot weather. It is very discreet and mobile. Hot cocoa gives us an obvious entry into the beverage space,” Pearson added, “… and each of these products is designed to hit one or more of the ‘stores, shelves, and sales’ areas to grow revenue month-over-month.”
Catalysts for growth
Several catalysts lie ahead that support the investment case – and a potential rerating - for Bhang’s stock, which Pearson believes is undervalued in comparison to the company’s real-world value.
While it is already the dominant chocolate brand in Canada –- and currently on dispensary shelves in seven US states –- Pearson said the partnership with Trulieve includes an expanded 11 state deal. The company has also doubled down on capturing consumer data which is incredibly valuable as the world marches toward complete digitization. It takes millions and millions of dollars and to build a strong brand with legs, she said.
"Bhang has an incredible head start,” she said.
The company is also keeping a close eye on the European regulatory environment, with the expansion of the Bhang brand into Europe being a key focus for 2022 and beyond.
“For the cannabis market specifically, most of the well-known MSOs (multi-state operators), LPs (licensed producers), and brands ride the whims of the market, while Bhang has been slowly and quietly building,” she said. “We’ve had a presence in Europe for the past five years. We’ve been building relationships and brand awareness through strategic partnerships. Now that several European countries have voted for adult-use or signaled that vote is imminent, we are well-positioned to expand across the pond.”
Now that the market is starting to understand the value of brands as an important factor in cannabis investment, Pearson said the sentiment is shifting to understanding cannabis as a CPG (consumer packaged good).
"From the strictest CPG vantage point, it’s a fact that great brands drive consumer behavior," she said. "They command shelf-space and more and more, they are best able to communicate directly with consumers. From that metric alone, 12 years of brand building in the cannabis industry, Bhang is a unicorn and an outstanding value.”
Looking at Bhang’s fundamentals, the strength of its properly established business in the cannabis market is obvious, Pearson added.
However, when examining the company’s tangible milestones, including longevity, strong licensee relationships, growing reach into the US and European market, and expanding innovative product catalogue, Pearson said Bhang is a solid, long-term hold.
“Being one of the world’s top cannabis brands, growing footprint and revenue in earnest, and as the obvious object of MSO consolidation, the case for adding Bhang to an investor portfolio is compelling,” she said.
Pearson concluded that Bhang's focus on excellence and high standards extends beyond its products to include its beliefs and social justice/"bhe bhetter"culture. One of the strongest of these includes supporting the Last Prisoner Project and its efforts towards releasing prisoners serving time for nonviolent cannabis offenses. Most recently, Bhang, through its collaboration with the Blues Brothers, sponsored a concert at MJ Unpacked that raised over $70,000 for the nonprofit.
Contact the author at stephen.gunnion@proactiveinvestors.com