CBD Supply Chain

CBD Supply Chain of CBD

October 22 2018

SDZ are developing a comprehensive strategy that involves in managing the supply chain, at least 30% of it between Australia and Canada, inclusive of off takes to Germany for European distribution.

Expectations for the cannabidiol (CBD) market continue to look bright as estimates are projecting the market to grow by 700% by 2020, according to Forbes . A new report by cannabis/legal marijuana market analysts firm Hemp Business Journal projects that the CBD market will grow to $2.1 billion by 2020, an astronomical jump in value compared to last year's cannabidiol (CBD) market of $202 million. As the market continues to swell, it is expected the space will reach the billion-dollar status as product diversification and global demand drive revenue levels. One of the major drivers for the CBD market is the growing list of Health benefits of CBD oil. CBD oil products have several benefits and are believed to cure various ailments in the human body. Over the past few years, the demand for CBD oil has increased in different parts of the world because of the growing awareness about the health benefits alone. Active in the cannabis industry include: PotNetwork Holdings Inc. (OTC: POTN), Medical Marijuana, Inc. (OTC: MJNA), GB Sciences Inc. (OTC: GBLX), Kush Bottles Inc. (OTC: KSHB), CV Sciences Inc. (OTC: CVSI)

Approval of Import and  Export Licenses from Canada to Australia

The most lucrative, respected and branded trade route for CBD is between Australia, Canada and Germany. With Australian and Canadian strains flying the flags very high. What makes these routes so impressive is that the USA is not there yet, but they are coming and they will want Canadian and Australian strains with an appetite more then any country.

Due to the fact that you need to tick many boxes in this space. Firstly you need a cultivation license to grow, you need to achieve this through a proven model, and Australia and Canada are strictly looking for GMP based strains which yields a higher price per KG and a higher quality of strain.

Secondly to this, you then need to trade with a company that has the equal license - SDZ have both Canada and Australian licenses. Thirdly you need to achieve at both ends on the back of your existing licenses the import and export licenses between each country for CBD.

SDZ will focus mid next year on achieving all licenses also in Germany also.

SDZ to sell CBD Strains to Australian Leading Cannabis Development Companies

Cannabis sales internationally currently exceed $10 Billion dollars and are projected to reach $31.5B by 2021 (Forbes). However few producers currently have the capacity or capability to supply growing international demand. Several Canadian, European, Israeli and Australian companies have engaged in international trade deals, however these have mostly occurred between affiliates, or comprised small volumes of final product forms. This means that establishing a fair market price for international wholesale (10s, 100s or 1000s of kg upward) of cannabis is difficult. A true market price requires liquidity, volume, transparency and open participation, none of which currently exist in the industry.

SDZ will work with the majority of the leading Cannabis companies in Australia and link the extensive supply chain they have in Canada to service the under developed market of Australia at this stage, this will continue to grow and Australian CBD then equally moved offshore and still managed under the SDZ control schedule. This includes SDZ to take “Off Take” agreements from the three JV licensed Australian facilities back into SDZ in Canada and then to SDZ Germany once established.

The market for export cannabis is restricted to highly regulated markets. Of these, Canada, Australia and Europe are the most attractive and accessible markets. These markets each have their own laws around the types of products allowed to be imported and sold. Canada is the most mature market with many large, modern producers and a significant domestic and export market. Importantly, all these markets require modern production to cGMP standards and quality assurance including testing by an independent third party cannabis analytic laboratory. Australia, is adopting a similar model to Canada, though even more regulated – driven in large part by Australia’s status as a major opium poppy producer, now currently 50% of the worlds opium is coming form Australia in such a short period.

Pricing

The price for High THC cannabis oil manufactured in Canada can exceed USD $20,000 per kg, with improving pricing for larger purchases. Major investment in low cost production in Canada, Europe and South America could put downward pressure on prices, but this is offset by rapidly growing demand and large new markets opening up for premium cGMP grade product. Via Joel the master grower and one of the worlds leading growers he is developing a team and strategy in Australia to grow strains that have been tested for now over 5 years, this equally ensures Australia is a fast moving market for SDZ and short cutting the problems faced in Canada in the early years. It is expected that the prices for wholesale in Australia will mirror that of Canada.

The big movement will be the ability to move “Tons” to licensed growers as buyers and discounted wholesale rates, while maintaining a $20,000 USD Kg wholesale rate for anything under 10 Kg for small and licensed entrepreneurs for products such as Pets, Edibles and other medicinal requirements

Cannabis Oil Pricing

So what is a reasonable price for investors, buyers and sellers to work when planning projects and negotiating deals in the regulated legal cannabis market? To a large extent on 3 factors.

Legal status determines which markets the product can be sold in. Currently the vast bulk of world production of cannabis flower (eg: including all THC and CBD produced in the US) is technically illegal, distorting price expectations. Most of this product is also poorly regulated for safety and quality leading to the second factor.

Quality and Safety also impact which markets the product can be sold in, and significantly raise the cost of production. Exporting to highly regulated markets such as Canada, Europe and Australia requires a consistent product produced in a controlled environment to a defined standard following cGAP and cGMP and relevant food safety and consumer health standards. Currently few nations meet this standard of production.

Quantity also has a huge impact on pricing. While consumers may pay $100 per gram ($100,000 KG USD) of cannabis oil in medical products, most dealers and distributors are buying by the kilogram and paying closer to $20 per gram ($20,000 KG USD ) of oil when buying wholesale. At the other end of the spectrum large companies are spending tens of millions of dollars to buy up the entire contracted production for cannabis oil from low cost producers in South America and elsewhere for as little as $1 to $5 per gram. It should be noted that this product may not meet the legal and quality criteria above to be sold in the most profitable markets, SDZ remain focussed on a high grade globally accepted product that will meet all future WHO (World Health Organization) requirements.

The bottom line is correct price to pay to buy depends on what you can sell it for, and this depends primarily on where you can sell it, to who and in what quantities. Obviously if you are buying 1 kg of oil you will pay more per gram than when will when buying 10 kg, 100 kg or 1000 kg of oil. Right now Australia is the key market.

SDZ will now focussed on moving by the end of 2019 close to 100 Tons of high grade Canadian product into the Australian market, in short this would make SDZ a dominant force on the CBD trade route. And currently have many people seeking such product.

Cost vs Return for CBD Oil

The results of the cost analysis conducted assume a total annual demand in Australia of around 11 tonnes of dried cannabis flowers for the end use of 30,400 patients at maturity, based on one gram of plant product per day per patient. The level of demand is based on research by the University of Sydney Community Placement Program, in partnership with MGC Pharmaceuticals, investigated the potential demand of medicinal cannabis. Based on this research, the expected number of patients using medicinal cannabis across medical conditions multiple sclerosis, HIV/AIDS, epilepsy and cancer is around 30,400 per annum at maturity.

The estimated cost of cultivation to meet the projected demand per annum is detailed are as follows.

The results show that broadacre (Outdoor) is the lowest cost option at $75 per square metre (sqm) or $888 per kg dried flower, and indoor the most expensive at $2,291 per sqm or $1,909 per kg dried flower. This translates to an annualised cost at maturity of $9.9 million per annum for broadacre, $17.1 million for greenhouse and $21.2 million for indoor cultivation.

The annualised cost accounts for operational expenses and a portion of the initial capital and infrastructure costs, that is, if equipment is expected to have a useful life of 10 years then 10% of the cost is accounted for each year. The total estimated cost, however, accounts for operational expenses and the full capital build and equipment expense required to establish the operation in year one to meet the expected demand for cannabis products. Total costs range from $10.6 million under broadacre to $41.8 million for indoor operations.

SDZ have adopted a completed sustainable off the grid structure, through natural water, natural gas reserves and clear solar panels that will bring high quality GMP Indoor strains closer to those of outdoor strains. It is safe to say SDZ using energy efficient methods that will bring the costs down to under $500 per kg (with normally 3.5Kg required for 1Kg of high quality CBD and equally sell the product at heavy volume levels (1 Ton plus) at closer to $12,000 USD and for light volumes $20,000 Kg

The range for 2019 we be on the low side 10 Ton and the high side 100 Ton delivered product in 2019