California is the world’s largest legal cannabis market, so it is no surprise that a slew of companies have centered growth initiatives in the state. With hundreds, nay thousands, of consumer choices between ingestion choices and brands, establishing brand loyalty is critical to growth, something that PLUS Products (CSE: PLUS)(OTCQX: PLPRF) has excelled at in CA and has now taken to two additional markets.

Manufacturers are vying for a substantial piece of a California market that will reach $3.1 billion in sales this year after $2.5 billion in 2018, the first year of legal recreational sales in the state. In the next three years, the CA market is expected to reach $6.0 billion, according to cannabis industry research firm Arcview Research and partner BDS Analytics.

PLUS Dominates Growing Edibles Market

What’s the most popular way to consume cannabis? Without question, it is flower, the industry nomenclature for smoking marijuana buds. The second and third most popular remain “smoking” related, being vape cartridges and pre-rolled joints. These three also have something else in common: they’re low margin, fiercely competitive product segments.

By dollar volumes, gummies (#4) are close to pre-rolls. By long-term margins, edibles are the way to go. Many consumers don’t like smoking in any fashion, making edibles the logical choice to enjoy cannabis and its compounds, such as cannabidiol (CBD) or tetrahydrocannabinol (THC). When it comes to edibles, gummies dominate the market as the consumer product of choice.

According to BDS Analytics, 17 of the top 20 ingestible products sold in California, Colorado and Oregon during the first four months of 2019 were gummies, with aggregate sales reaching $115 million.

The top-selling gummy product in California in the last 12 months by dollars of retail sales is “Uplift” by PLUS Products. Lending evidence to the popularity of gummies, Uplift was the best-selling consumable cannabis product across all markets tracked by BDS Analytics’ GreenEdge platform in 2018. Actually, it wasn’t even close, with Uplift dollar sales more than doubling that of the next closest non-PLUS gummy product sold in California.

It must be specified as “non-PLUS” product because the second best-selling gummy product in California last year by dollar sales was also a PLUS Products gummy branded “Unwind.” All told, PLUS products commanded a stunning 21% share of the gummies market in CA in Q2.

To be clear, in Q2 of 2019 PLUS had the #1 and #2 best-selling products across all categories in California and owned over a fifth of the gummies category as a whole.

Replicating the Model in Nevada

PLUS management is hyper-focused on following the recipe for success utilized by major consumer packaged goods companies. In short, that is starting with one product, dominating that market, then expanding into other large markets and adding more SKUs. With more than 2.5 million units sold through over 350 delivery and retail partners in California, and a formula for success firmly established, the company is now expanding the east and into the lucrative Nevada market, which are expected to exceed $1.2 billion by 2022.

Federal prohibition of cannabis means that product cannot be shipped across state lines. In order to penetrate Nevada, which legalized recreational marijuana in 2016, PLUS partnered with licensed integrated producer TapRoot Holdings in June. In order to ensure consistency in-line with the best-selling products in CA, PLUS controls all elements of the manufacturing including machinery and ingredients with it’s own management supervising day to day operations.

Just four months after striking the partnership, PLUS hit a milestone when its THC-infused gummies hit the shelves at Nevada retail locations two weeks ago. The products were first available at three 3 Medmen Las Vegas locations, as well as the iconic Planet 13 dispensary directly on the Las Vegas strip.

PLUS management says that the strategy is to use partnerships with licensed integrated cultivators/manufacturers in other states to continue building a nationwide footprint for the popular gummies. The company has a target of entering five new markets (Michigan, New York, Illinois, Arizona and Massachusetts) by the end of 2020.

Following the Playbook: New Products, New Influencers

Just like Coke (NSYE: KO) or Budweiser (NYSE: BUD) which started with one hit product and expanded their dominate portfolios from there, PLUS is doing the same thing. Late in September, new products were introduced under the Uplift, Unwind and Balance product profiles. The new flavors – tangerine, concord grape and cucumber, respectively – were introduced at the Hall of Flowers cannabis tradeshow in Santa Rosa, CA and developed in response to demand from retail partners and consumers for more flavors of the best-selling gummies – effectively doubling the company’s product offering in their signature gummy portfolio.

While cannabis remaining a Schedule I drug at the federal level prohibits interstate commerce, the passage of the 2018 Farm Bill in December legalized nationwide commerce for hemp products at the start of 2019. Hemp is a version of cannabis sativa that doesn’t contain (<0.3%) the psychoactive compound THC. It does, however, contain CBD, a compound also found in cannabis that is widely trumpeted for a bevy of wellness benefits.

Addressing this market, PLUS last month launched its first-ever 100% hemp-CBD product line nationwide through its new e-commerce platform. The new CBD line initially is comprised of “Balance” (blueberry flavor), “Uplift” (grapefruit) and “Sleep” (blackberry tea).

Lending a tremendous amount of validation to the quality of the PLUS team and new product line, PLUS partnered with American superstar and philanthropist John Legend and global sleep company Casper Sleep.

Legend, who says he has long been a believer in the benefits of CBD, will effectively serve as a brand ambassador for PLUS products to his more than 30 million followers on Instagram, Twitter and Facebook. While Legend surely could have signed on with any company in the space, he says he was drawn to PLUS as an innovative, family-run company whose high-quality products are underpinned by science.

The partnership with Casper is a little different insomuch that the award-winning mattress maker is looking to PLUS to diversify its product bag beyond mattresses, pillows, bed frames, bedding and accessories. Leveraging the new “Sleep” line of PLUS, Casper co-branded the launch edition of this product.

“We’re always exploring new ways to improve sleep across the entire sleep arc — from sunset to sunrise,” said Neil Parikh, co-founder and chief strategy officer at Casper, in a statement on the new partnership. He added, “Partnering with [the PLUS] team of experts to introduce CBD sleep gummies brings a new way to relax and rest to those who need it.”

Tough Market Creates Opportunities

Let’s face it, 2019 has been a brutal year for cannabis stocks, with headline grabbers like the CannTrust (NYSE: CTST) (TSX: TRST) scandal and Bruce Linton’s ouster at Canopy Growth (NYSE: CGC)(TSX: WEED) spurring along negative sentiment that has resonated industry-wide. That doesn’t mean that every company has deserved a deep slashing of valuation. In fact, it has created some opportunities.

PLUS Products, with $34.1 million in cash on hand at the end of Q2, has dutifully been going about its business, holding a dominant market position in California while adding new products, opening a new e-commerce gateway, expanding into Nevada and partnering with two household names as it continues to efficiently execute on a proven CPG model. All the while, management has kept the share structure lean with only 43 million shares outstanding (49.3 million fully diluted), 34% of which insiders control as a conviction of their confidence in the direction of the company.

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