Canopy Rivers invests $2 million into Dynaleo Inc.
Canopy Rivers Inc. (TSX: RIV) today announced a C$2 million investment in Dynaleo Inc., an Edmonton-based company focused on white-label manufacturing edible cannabis gummies for the Canadian market. Through this investment in what the Company anticipates may become a leading industrial scale Canadian gummies manufacturer, Canopy Rivers believes it is capitalizing on a significant opportunity in what is currently an underserved and underdeveloped segment of the cannabis market. Once Dynaleo receives the required licencing from Health Canada, it expects to begin operating its 27,000 sq. ft. purpose-built facility with the goal of producing enough gummies to take a sizable bite out of the projected edibles market.
We believe that Dynaleo is positioned to become a market leader in cannabis edibles manufacturing in Canada.Narbé Alexandrian, President & CEO, Canopy Rivers
"In the gummies market specifically, we see a significant supply and demand imbalance and a move towards outsourcing products to leading manufacturers. We think Dynaleo's manufacturing capabilities, combined with its capable management team, position it to help close this supply gap in the short term and become a trusted manufacturer of cannabis edibles in the long term," said Narbé Alexandrian, President & CEO, Canopy Rivers.
When Cannabis 2.0 launched in Canada, regulatory uncertainties around the gummy format led many license holders to focus on other edible cannabis formats, with only some licensed producers investing in the infrastructure to produce gummies. As a result of this, initial market observations suggest that the demand for edibles is significantly ahead of supply, with limited product availability and consistently high out-of-stock rates relative to other products.
Headset data from mature U.S. markets, combined with Deloitte's projection that Canada's edibles market could be worth $1.6 billion annually, indicates that there is an opportunity for increased gummy production in Canada. In Colorado and California, Headset reports that gummies were the top-selling edible product, accounting for 55% and 56% of edible cannabis sales respectively in 2019. Assuming that Canadians emulate these consumption habits, Canadian licensed producers may not yet have the production capacity or partnerships to fulfil this demand.
"On top of helping Canada's licensed producers close the supply gap, we also believe that Dynaleo will play a role in expanding the total addressable market for cannabis products, with market research indicating that new consumers are more likely to enter the cannabis market through edibles than other products," added Alexandrian.
"I am extremely proud of the Dynaleo team, our manufacturing facility, and the path that is ahead of us," said Michael Krestell, Executive Chairman, Dynaleo. "We welcome Canopy Rivers' investment, and the expertise and relationships with established industry players that comes with it."
Dynaleo has completed construction of its purpose-built facility and has submitted all supporting documentation for a standard processing licence to Health Canada. Once licensed, Dynaleo expects it will develop a customer pipeline that includes both licensed producers as well as traditional consumer packaged goods companies.
Canopy Rivers' investment is part of a larger C$7 million round. Canopy Rivers' investment in Dynaleo is structured as a C$2 million unsecured convertible debenture with additional warrant coverage. The Debenture is convertible at the Company's option into common shares of Dynaleo. Upon conversion of the Debenture and exercise of the Warrants, and assuming no further changes in Dynaleo's capitalization table, Canopy Rivers' ownership interest will be 12.2%.
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