YSS CEO talks cannabis retail, challenges, opportunities and more
In this edition of "Rising High," The Fly conducted an exclusive interview with Theo Zunich, president and chief executive officer of YSS Corp. (YSSCF), a cannabis retailer with operations under the YSS and Sweet Tree brands. Here are some of the highlights:
CANNABIS RETAIL: YSS Corp. is a cannabis retailer operating seventeen stores in locations across Alberta and Saskatchewan where customers can discover and explore cannabis. “There was a period of time when the regulations were still coming out, capital was available for the industry, we had the right people involved and it felt like a good opportunity to enter the cannabis space,” Zunich said. “We see a lot of value to being on the front line and having the direct communication with the customer especially in such a highly regulated industry.” The CEO added the retail portion of the supply chain is definitely lower risk than a lot of the other sectors of the industry. “We simply follow consumer data and adjust our inventory according to what the consumer is asking for,” he said. “You have a lot of flexibility to shift quickly based on consumer trends.”
COMPETITIVE EDGE: When asked about the company’s key differentiators, Zunich said a main part of YSS’ edge is that it always puts the customer first. “When you’re talking about retail fundamentals, you always put the customer first and focus on operational efficiencies,” he said. “Ultimately we’ve always viewed this as a retail first business and cannabis second. It doesn’t matter whether its weed or widgets, we’re buying a product, we’re adding a margin and we’re selling to the customers.” The CEO said the company’s ability to do so efficiently allows it to pass on lower prices to the customers and it also aligns with the corporate objective of being operationally efficient and focused on cost controls. “We don’t have any debt and we have cash on the balance sheet,” he said. “Financially we’re pretty well positioned.” Zunich said in order to continue capturing market share, YSS will continue to focus on customer service, competitive pricing and consistently turning over inventory quickly to get new products on the shelf.
EXPANSION: YSS currently has sixteen stores in Alberta and one in Saskatchewan and the CEO said the company’s immediate expansion plans are focused on those areas. “It’s an open regulatory environment now,” he said. “Right now in Alberta we can find the pockets where this isn’t competition. We see there’s a little bit more low risk but likely lower reward than I guess if we we’re to build in Ontario, but we like the risk/reward profile.” Zunich said expansion plans outside of Alberta and Saskatchewan are focused on Ontario but the regulatory environment has been incredibly challenging for the last 24 months. “If you were to go build a store and apply for a license, you have no certainty when you can get that license, open that store and start generating cash flow,” he said. However, the CEO added because Ontario doesn’t have nearly as many stores as Alberta and is three and a half times the size of Alberta, there is a potential reward. “Balancing risk and reward across our entire company is the objective,” he said.
CHALLENGES: When asked about the biggest challenges facing the industry, the CEO said he views the negativity around missing estimates as the biggest hurdle. “There are a lot of analyst forecasts for the industry and companies that really are very aggressive and probably just early,” he said. “When we think about Colorado, Colorado took six years to get to $1.4B in recreational sales per year. Canada is just through eighteen months so I think patience is key.” Zunich said he believes that shaking some of the negativity from the overhyped forecasts will help the industry move forward. “We’re looking at early stats in Alberta at least, 2019 industry sales were $200M. Based on January and February this year, we’re already pacing $440M and the growth should continue to about $1B if you look to Colorado as a proxy,” he said. “It’s just going to take time.”
OPPORTUNITIES: As the cannabis space develops, Zunich said he sees opportunity in the fact that cannabis has become the fastest growing consumer segment in Canada. “That’s really the reason why we built the framework to our business, why we entered this industry and why we’re excited about the future,” he said. “We know the growth will come…We’ve got arguably three to eight years more of continuous growth.”
CORONAVIRUS: When asked about the impact the coronavirus outbreak has had, the CEO said YSS Corp. has been deemed an essential business and therefore was not required to shut down. “We saw a little bit of a spike in sales when the panic was happening and then things had leveled off and started following the trends we have seen prior,” he said. Zunich added the stores are operating with reduced hours but traffic has been as expected, leading to a minimal impact from a business perspective. “The key is really around human resources management,” he said. “That’s been the biggest focus and the biggest challenge is making sure the stores are safe as possible for customers and staff.” The CEO said the company also implemented a number of measures, including plexiglass barriers, cleaning protocols, social distancing protocols and door staff to manage traffic. YSS also accelerated the roll-out of its Click-and-Collect feature allowing customers to reserve products online and pick them up in store.
FLOWER VS. DERIVATIVES: As cannabis products become more diverse, Zunich said, based off of U.S. stats, he believes a few trends will continue for delivery systems. “We will see is dried flower will continue to grow,” he said. “We’re capturing more of the black market as product prices come down and quality goes up and there’s a large consumer segment that loves dried flower.” The CEO added that when looking at the U.S., edibles and vapes tend to capture a new consumer group and in certain states, vapes are starting to get to the point where their sales are equal to flower. “Pre-rolls had been a popular seller for the first year and a bit of legalization,” he said. “Since the introduction of vapes and edibles in January and February, we’ve actually seen pre-roll sales decrease. It actually makes a lot of sense from a perspective that pre-rolls were simply a convenience product and now that there’s other convenience products available we’re seeing a decrease in pre-rolls. I think if anything the new product types will continue to capture some of that pre-roll market.”
OTHER CANNABIS STOCKS: Other publicly-traded companies in the space include Akerna (KERN), Aleafia (ALEAF), Aphria (APHA), Aurora Cannabis (ACB), Auxly Cannabis Group (CBWTF), Biome Grow (BIOIF), CannTrust (CTST), Canopy Growth (CGC), Canopy Rivers (CNPOF), Cresco Labs (CRLBF), Cronos Group (CRON), CV Sciences (CVSI), Delta 9 (VRNDF), DionyMed Brands (DYMEF), Elixinol Global (ELLXF), FluroTech (FLURF), General Cannabis (CANN), Green Thumb Industries (GTBIF), Greenlane (GNLN), GrowGeneration (GRWG), Harborside (HSDEF), Hemp Inc. (HEMP), HEXO (HEXO), India Globalization Capital (IGC), Indiva (NDVAF), ICC International Cannabis (WLDCF), Innovative Industrial Properties (IIPR), Khiron Life Sciences (KHRNF), Liberty Health Sciences (LHSIF), MediPharm Labs (MEDIF), MedMen (MMNFF), Mjardin (MJARF), Neptune Wellness Solutions (NEPT), Organigram (OGI), Origin House (ORHOF), Planet 13 (PLNHF), Real Brands (RLBD), Sproutly (SRUTF), Sunniva (SNNVF), Supreme Cannabis (SPRWF), Tetra Bio-Pharma (TBPMF), Tilray (TLRY), Trulieve (TCNNF), Valens (VLNCF),Vireo Health (VREOF), Wayland Group (MRRCF), WeedMD (WDDMF), Westleaf (WSLFF), Wildflower Brands (WLDFF) and Zynerba (ZYNE).