CPH looks to expand its footprint as NY State reaches deal legalise recreational cannabis

By Jonathan Jackson. Published at Apr 6, 2021, in ASX Biotechs

Creso Pharma (ASX:CPH) has appointed a US Director of Business Development just as New York State has legalised recreational cannabis.

New York State is expected to become one of the largest recreational markets in the US valued at US$4.2BN.

“For generations, too many New Yorkers have been unfairly penalized for the use and sale of adult-use cannabis, arbitrarily arrested and jailed with harsh mandatory minimum sentences," Cuomo said in a statement. "After years of tireless advocacy and extraordinarily hard work, that time is coming to an end in New York State," New York Governor Andrew Cuomo said.

Creso’s appointment of Mr John Griese as Director of US Business Development, is designed to capitalise on the global trend towards cannabis legalisation.

Mr Griese brings nearly 30 years of executive level experience in sales, Consumer Package Goods (CPG) and supply chain management expertise to Creso Pharma, from roles with large multinational companies including Nestle and Pepsico.

While this resume alone is attractive, Mr Griese also has considerable experience in the cannabis sector.

Most recently, he has been one of the key leaders at the C194.8M capped Supreme Cannabis Company (FIRE.TSX).

As COO of Supreme Cannabis Company, Mr Griese was directly responsible for product development, commercialisation initiatives, procurement, manufacturing operations and supply chain management. He was instrumental in aligning cost structure with revenue, assuring compliance standards for new products and assisted in optimising the group’s four facilities and 650 employees to reach full capacity.

He has also held the position of COO at Bloom Farms, a branded cannabis manufacturer and distributor in California, where he scaled operations and implemented a number of processes necessary to meet the requirements for the regulated adult use marketplace in California.

Suffice to say, Mr Griese has considerable knowledge of the North American cannabis sector, as well as a number of established relationships that he will be able to leverage to drive growth for Creso Pharma.

“The North American market provides a significant opportunity for Creso Pharma and I look forward to working with the Company to assist in growing its foothold in the US,” Mr Griese said.

“Creso Pharma has a wide range of innovative products across all of its operating divisions, which are very well suited to meet the growing demand from American businesses and consumers.

Mr Griese already has an intimate knowledge of Creso Pharma’s operations, developed through his previous role as Chief Operating Officer, Americas.

He will now turn his attention to revenue generating and value accretive opportunities in the North American market to further establish Creso Pharma’s footprint ahead of the potential legalisation of recreational cannabis.

“We are very excited to welcome John back to Creso and Board and management are very confident that his new role will unlock a number of potential opportunities for the Company throughout the US,” Non-executive Chairman Adam Blumenthal said.

“The recent legislative push in New York State highlights the ongoing shift towards the federal legalisation of recreational cannabis and John’s appointment shows Creso Pharma’s commitment to establishing a strong foothold in-country to unlock value for our shareholders.

“To already have boots on the ground in the US will provide the Company with a key advantage over our competition. John has established relationships in the US market through his roles in California and Toronto and we look forward to leveraging his network in the coming months.”

How can CPH capitalise on US cannabis legalisation

The impact CPH can have in the US will be determined by federal legalisation of cannabis.

However, with New York State legalising cannabis, the outlook for the rest of the country is positive.

CPH is looking to be a first mover in supply, sale and distribution once (and if) federal legalisation occurs.

Mr Griese’s boot on the ground approach ahead of regulatory change could provide CPH with a significant competitive advantage over its peers and will certainly give CPH inroads into the US via the partnerships and agreements Mr Griese is expected to be working on.

For CPH, speed to market will be paramount to its success as it looks to supply the largest consumer market of cannabis in the world with a range of products.

Marijuana Regulation and Taxation Act (MRTA)

CPH’s aim will be helped by the introduction of the Marijuana Regulation and Taxation Act, which has been introduced to legalise, tax and regulate recreational cannabis for adults that are 21 years and over in New York State.

As reported by ABC News in America, “Under the New York State Cannabis/Marijuana Regulation & Taxation Act, up to three ounces of marijuana will be legal to possess.

“All recreational cannabis will have a 13% sales tax with 9% going to the state and 4% going to localities, according to the legislation. Tax collection is projected to reach $350 million annually, according to the governor's office.

“The tax revenue will be deposited into a special fund that covers "reasonable costs to administer the program and implement the law," and provide money to education, New York's "Community Grants Reinvestment Fund" and the "Drug Treatment and Public Education Fund," according to the governor's office.

The legislation would create a new Office of Cannabis Management (OCM), which would be controlled by a Cannabis Control Board. The OCM would then regulate the sale and distribution of both recreational and medicinal cannabis in New York State.

The MRTA was approved on 31 March 2021 with a budget for the framework to be established by 1 April 2021.

If passed, New York State would become the fifteenth US state to legalise recreational marijuana.

The MRTA will pave the way for the growth of this potential US$4.2Bn industry that could generate tens of thousands of jobs and lead to the creation of one of the largest recreational cannabis markets in the US.

Can CPH grow its footprint?

Creso Pharma has an established footprint in the Canadian recreational market via its wholly-owned Canadian subsidiary Mernova Medicinal Inc. Mernova operates a fully licensed 24,000 square foot cultivation and growing facility, which is only 219 miles from the US border.

Entry into Canada has already given the company invaluable understanding of how to navigate complex regulatory frameworks.

On that understanding, CPH has already successfully launched 10 recreational cannabis products through its Ritual Green and Ritual Sticks brands in four large provinces across Canada.

Mernova has been generating revenues from recreational cannabis sales since September 2020 and has the momentum and location to service the North American recreational cannabis market following federal legislation.

Mernova should give CPH its first mover advantage into the broader North American landscape.

Creso Pharma also already entered into a non-binding letter of intent with CERES Natural Remedies in the US.

CERES is a leading Vermont-based distribution company and a subsidiary of High Fidelity, Vermont’s largest independent cannabis company.

Under the terms of the LOI, a formal commercial agreement is on the table (which has now been extended to 1 August 2021) setting out the terms upon which CERES will sell Creso’s anibidiol® animal health products through its established distribution network in the US, subject to federal legalisation of CBD in the US.

Given the changing legal landscape, CPH is currently exploring a number of opportunities through both Mernova and CERES to drive growth through New York State.

CPH is focused on growth opportunities in anticipation of US federal legalisation of cannabis. New Mexico has also recently passed legislature which is set to legalise the use of recreational Cannabis.

CPH sees New Mexico as a gateway to Mexico and South America, which would further extend its reach in this region.

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