Joint Venture: Canadian Cannabis Producer INDIVA Partners With Edible Maker Bhang

By Don Jergler

Publicly traded INDIVA Ltd. on Thursday announced it was making a $1 million investment into edibles licensor Bhang Corp. to create a new international joint venture.

The pending deal gives Ottawa, Canada-based INDIVA exclusive rights to manufacture and sell Bhang products in Canada and the right to export those products internationally.

INDIVA is the manager of the joint venture. The company has committed to investing $5 million in building cannabis-processing infrastructure. Bhang, a Nevada-based corporation launched by a certified master chocolatier, is contributing its intellectual property, including trademarks and patents, to the venture and will collaborate with INDIVA on sales and marketing.

Bhang, which has been referred to as the “General Mills of the cannabis industry,” licenses cannabis chocolate bars, as well as a collection of vapes, gums and mouth sprays. INDIVA is a Canadian supplier of medical-grade cannabis. Each of the parties say they have committed to contribute equally to the working capital of the venture.

The cannabis and CBD products produced by the venture will be sold in Canada, primarily for the recreational market, which is expected to launch in the summer or fall of 2018.

The joint venture is subject to compliance with applicable laws and regulations.

The deal is set up as a share purchase agreement in which INDIVA will spend $1 million to take a 4.9 percent equity interest on a fully diluted basis in Bhang.

Eric Layland, president of Canna Ventures, a brand development, marketing, and research firm in Seattle, said he believes Bhang will be a big beneficiary of the venture, eventually paving the way for the firm’s well-regarded edibles to start entering markets around the globe.

“I have a sense that Edibles are more likely to be positively received for the product to be traded internationally,” Layland said. “I think that’s just a little bit more palatable right now and this has the potential to set up Bhang to be an international leader in Edibles.”  

The venture is also further evidence that Canadian companies are stepping out in the international cannabis market ahead of the nation’s move toward full legalization, with recent exportation agreements from entities in the country to deliver products to nations including Israel, Germany and Australia.

“One of the things that we’ve been seeing in the market is how Canada seems to have been turbocharged,” Layland said. “It’s interesting to see that these international agreements are starting to emerge.”

The North American venture has a lot of potential.

Worldwide consumer spending on legal cannabis is projected to reach $57 billion within the next 10 years, according to the “The Road Map to a $57 Billion Worldwide Market” report released in late February by Arcview Market Research in partnership with BDS Analytics.

The report also forecasts that recreational cannabis will make up the majority of spending at $38.3 billion, while medical spending is expected to reach $19.1 billion.

North America will continue to represent the largest spending volume, growing nearly fivefold to $47.3 billion in 2027, the report shows.

David Rheins, founder and executive director of the Marijuana Business Association, a national business-to-business trade organization, is another believer that, with this move, Bhang is positioning itself to be a big international player.

“International cannabis is the next big story,” Rheins said, adding that political apparatuses around the world are just beginning to enable these types of ventures.

President Donald Trump last week seemed to indicate he’ll respect the rights of states that have legalized cannabis, easing persistent fears in the industry following an announcement by US Attorney General Jeff Sessions earlier this year that he would rescind the Cole Memorandum, an Obama-era hands-off policy toward legal marijuana businesses.

Other prominent Republicans seem to be coming around on the issue as well, including California Rep. Dana Rohrabacher, who sponsored the Respect State Marijuana Laws Act. Former House Speaker John A. Boehner of Ohio also said he’s changed his position on legal marijuana.

“Clearly, there’s a signal from on top that the Republicans are going to be canna-friendly and I think this sets up 2018 to be the cannabis election,” Rheins said, adding that the INDIVA-Bhang deal is “a harbinger of that” developing cannabis-friendly atmosphere.  

Bhang’s signature cursive branding will be most prominent on the packaging produced by the venture, but all packages will also visibly display INDIVA branding – “Powered by INDIVA,” according to the companies.

“The joint venture allows us to leapfrog over the years and millions of dollars of research and development that other Canadian licensed producers will need to spend to successfully produce high quality cannabis and CBD products,” Koby Smutylo, chief operating officer and general counsel of INDIVA, said in a statement. “We will also benefit from the large consumer following Bhang products enjoy in Canada and worldwide.”

Bhang CEO Scott Van Rixel, a chef and master chocolatier, framed the deal as a step toward growing the company’s brand beyond the U.S.

“We are overwhelmed by the requests for Bhang products we receive from Canada, Europe, Asia and around the world,” he said in a statement. “The joint venture finally gives us a platform to potentially be able to produce and supply those markets.”

Shares of INDIVA (NDVA) rose 04 cents, or 5.26 percent, to 80 cents in heavier than usual trading on Thursday on Canada’s TSX Venture Exchange following the announcement of the venture. That’s the highest it’s been this month, but the stock was still far off its one-year high of $1.29 reached on Dec. 27, 2017.

Shares were unchanged at 80 cents near the end of trading on Friday, April 20. At the day’s exchange rate between Canadian and US dollars, a share is worth 63 US cents.

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