Pre-roll joint market provides multiple growth opportunities for Creso

By Trevor Hoey. Published at Apr 8, 2021, in Small Caps

Creso Pharma Limited’s (ASX:CPH; FRA: 1X8) wholly-owned Canadian subsidiary, Mernova Medicinal Inc. has secured new purchase orders valued at C$145,192 (A$150,770) from the Ontario Cannabis Store (OCS) and Yukon Liquor Corporation (Yukon).

These orders include a repeat order from the OCS and the second order Mernova has received for its pre-roll joint range in a very short time span.

The new orders also include a maiden PO for Mernova’s new one ounce bag offering.

The $100,000 plus order for Mernova’s leading Ritual Green product range is from OCS which is the crown agency solely owned by the Province of Ontario.

The OCS reports directly to the Ministry of Finance and is the province’s only retailer and wholesaler of legal recreational cannabis.

It also provides legal cannabis products to a large number of customers through Health Canada-approved suppliers.

Ontario is one of Canada’s largest recreational cannabis markets and represents a major opportunity for the company, particularly given that Creso has already established a footprint in the region.

Mernova also secured a PO from the Yukon, valued at C$43,108 (A$44,833) for the company’s pre-roll joint range and new one ounce bag offering.

This order marks the first time that Mernova’s Mimosa and HPG13 strains are being sold in pre-roll joint form.

Mernova sells its pre-roll joint range under the Ritual Sticks brand.

The pre-roll products utilise the company’s top-quality indoor grown, hand trimmed, hang dried, cured, artisanal, craft cannabis sold under the Ritual Green segment.

User-friendly ritual sticks represent a large addressable market

The Ritual Sticks range provides products for people who do not know how to roll their own joints, or simply prefer the convenience of having their joints pre-rolled for them.

The pre-roll cannabis segment is a large addressable market for Mernova, and Ritual Sticks also serve as an entry level product that allows consumers to try Mernova’s high-quality strains at an affordable and attractive price point.

Management expects that once people try its products, a significant number will become repeat customers.

Mernova’s new one ounce bag offering has been introduced so that consumers can secure a larger supply of its leading cannabis strains, at a volume discount.

The initial order is for Mernova’s Mimosa strain, with other strains to potentially follow.

The new product segment further builds out the company’s offerings and will assist in streamlining Mernova’s inventory and distribution.

Greater frequency and quantum of orders in Canadian market

Mernova continues to witness strong uptake of its products across Canada and shorter intervals between purchase orders.

This is very encouraging in terms of revenue visibility and predictability, as well as highlighting the company’s strong brand recognition in a highly competitive market in Canada.

Additional orders are expected in the near term, which underpin a positive outlook for the remainder of the financial year.

Mernova’s managing director, Jack Yu discussed these recent developments, particularly focusing on the significance of repeat orders and the popularity of Ritual Sticks in saying, “To have secured these new purchase orders is a major achievement for Mernova.

"Particularly, the repeat order from OCS is very pleasing and our second order for Ritual Sticks in another new province highlights the significant potential the product has amongst consumers.

"The pre-roll market segment is booming and offers Mernova a huge opportunity that we plan to capitalise on to the fullest.

"We are very confident that we can leverage our growing reputation as a high-quality, artisanal, craft cannabis producer, to make headway into this market, and establish ourselves as producers of some of the best pre-roll joints in the country with our Ritual Sticks, as we’re currently doing with our Ritual Green brand, in the dried flower market."We are also very happy to have launched our new one-ounce bag offering, which will allow consumers to purchase more of their favourite cannabis at competitive prices, by offering a volume discount.

"The larger ounce offering will also allow the company to streamline its inventory practices, ensuring we retain the highest standard and quality of cannabis in our range of high-quality offerings.

"As the time between purchase orders continues to decrease, Mernova continues on a track towards a stable and recurring revenue model.

"We anticipate that this trend will continue, and we remain very optimistic about our growth prospects over the coming months.”

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