When the recreational market opens up, who will emerge as the “Starbucks of the Cannabis Industry”

Tokyo Smoke’s flagship store on Queen St. W in Toronto. Photo by Kayla Rocca

By: Don Hauka
 

DOJA-Tokyo Smoke merger aims at making Hiku Brands a go-to consumer choice

When the recreational use of marijuana becomes legal in Canada this summer, a handful of larger companies will be vying to become the dominant player in a massive new market. Branding and quality will be keys to success. With a limited number of licensed producers, which company is in position to become the go-to consumer choice ­— the Starbucks of the cannabis space?
 
Two of Canada’s best-established cannabis lifestyle brands recently merged to create a new brand house that they hope will become the dominant Cannabis retailer in Canada. DOJA Cannabis Company Ltd. and TS Brandco Holdings Inc. (Tokyo Smoke) joined forces to create Hiku Brands Company Ltd. (CSE: HIKU), the country’s first retail-focused, craft cannabis producer with a portfolio of top cannabis brands.
 
Hiku brings established brands DOJA, Tokyo Smoke, and Van der Pop, plus a significant national retail presence together under one umbrella. It also merges the management teams lead by DOJA’s Trent Kitsch and Tokyo Smoke’s Alan Gertner.
 
“What unifies DOJA and Tokyo Smoke is very clear — we believe cannabis is a consumer product and having a retail brand and a high-quality product are what consumers want,” says Gertner, CEO of Hiku.
 
“We’re definitely working hard to achieve that goal, and we think that together we’re better and even more powerful in the pursuit of that goal.”
 
Another unifying factor is the shared corporate philosophy of thinking outside the box. The combined DOJA and Tokyo Smoke management teams give Hiku leadership with a proven entrepreneurial track record and decades of collective experience in branding, marketing, corporate strategy, and retail operations.
 
“We have the strongest, hungriest, most authentic team who have a proven track record in building brands and innovative products,” says Kitsch, Hiku’s President.
 
Gertner built Tokyo Smoke into an award-winning cannabis lifestyle brand with five locations across Canada. Kitsch, the mastermind behind SAXX Underwear Co., has made DOJA a premium cannabis lifestyle brand with state-of-the-art growing facilities in B.C.’s Okanagan Valley, and a cafe operation in Kelowna.
 
By putting their two companies together, they’ve given Hiku retail stores in Ontario, Alberta, and B.C. with a strategy to grow its footprint. At the same time, they’ve signed a supply agreement with Aphria Inc. (TSX:APH) that included the Leamington-based supplier of medical cannabis making a strategic investment of $10 million in Hiku. The merger of the two companies closed on January 30, 2018, with Hiku holding a cash balance  of approximately $32 million, which will be invested in expanding its cannabis production capacity, growing its retail footprint, and adding select brands to its portfolio through strategic acquisitions.
 
“Aphria’s investment is a great validation for what we’re doing,” says Gertner. “It’s also incredibly important to us for fulfilling our retail vision.”
 
That vision is one where Hiku emerges as the dominant player in the cannabis space, with stores in multiple provinces offering exclusive products that appeal to a wide variety of consumers across Canada and globally.
 
“Someone is going to be Starbucks for Cannabis. Someone is going to define the modern retail experience and deliver a high-quality product to consumers,” says Gertner.
 
Both Gertner and Kitsch agree that experience has to be excellent from start to finish.
 
“We have the opportunity to really shape the future of cannabis products and experiences, while at the same time build our brands in a genuine and authentic way with the quality product in the box — not a beautiful box with an average product in it,” says Kitsch.
 
“Everything is going to be on brand. What you see through the Hiku story is a quality product in the box augmented by a great support and online experience, and also a great retail experience.”
 
Vahan Ajamian, research analyst at Beacon Securities, says while the rules around cannabis branding have yet to be released by the federal government, branding “will be a key component of success” for any firm. And that puts Hiku in a good position.
 
“I think the merger is definitely a big deal. We have a company that’s a licensed producer in DOJA, merging with Tokyo Smoke, which won brand of the year at the Canadian Cannabis Awards. So, you have a company that has a license and has production and has one of the most well-established, well-known brands in what is an early industry,” says Ajamian.
 
“As the industry matures and as brands matter, that’s going to be one of the key value-added parts to the overall industry. It’s going to be brands, and Hiku is well-positioned to be one of the leading players on that end of it.”
 
Neal Gilmer, a research analyst for Haywood Securities, says the merger creates a vertical integration opportunity as the legalization of the recreational cannabis market nears.
 
“The significance in the space is with respect to the vertical integration opportunity,” says Gilmer. “You bring together both brands and have the opportunity to have that vertical integration from cultivation right through to storefront sales.”
 
Gilmer says the Aphria investment gives Hiku a strong endorsement from an industry leader. And while it’s still early days, Kitsch and Gertner have put their new company in a very good position.
 
“I think it provides them the opportunity to become a dominant player,” says Gilmer. “It’s early, but as we start to see how things unfold within the recreational market, I think this really positions them well.”
 
Having innovative company managers with track records of success like Kitsch and Gertner also gives Hiku the edge in branding over other companies operating in the cannabis space.
 
“I think quite frankly most of the companies out there are still trying to establish their brands, or to identify their brands, or figure out how they communicate their brands to the marketplace,” says Gilmer.
 
“Both Tokyo Smoke and to a slightly lesser degree DOJA have already started that process of establishing their brands.”
 
Kitsch has a track record of building successful brands in other industries. He built the SAXX Underwear Co. into a globally recognizable brand, and the fastest growing underwear brand in North America before exiting the business in 2016. Kitsch Wines, founded in 2013 by Trent and his wife Rita has quickly become an award-winning winery.
 
That experience gives Hiku’s management team an edge in building a successful brand in the wide-open cannabis space, says Kitsch.
 
“The underwear market was a very mature market, and we came in and through innovation and through design, we changed that market,” says Kitsch.
 
“Now we have an additional advantage in that the market we’re entering isn’t a mature market, and there aren’t large incumbents, and we have the opportunity to really shape the future of cannabis products.”
 
Gertner says he and Kitsch will stick to the same philosophy that made DOJA and Tokyo Smoke successful in building Hiku Brands Company Ltd. (CSE: HIKU) — innovation and attention to the complete consumer experience.
 
“We will push boundaries. We have the opportunity to make sure that the company is both operationally savvy so that were always innovating and we always push the boundaries, and offer consumers a true modern experience that we can be a leader in this market,” Gertner says.
 
So with the launch of the recreational cannabis market fast approaching, both Gertner and Kitsch have a vente-sized case of excitement.
 
“We are so excited for July, and we’re all so excited for the process of design and creation that we’re continuing to do,” says Kitsch. “We’re excited about a new market and just excited to be working together.”