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Fresh Cut Cannabis: Pathway to Profitability

New Jersey, one of the most anticipated cannabis markets in the U.S., is still in its infancy. The state has approved fewer than 20 cultivators to begin operations, many of which have not yet begun sales. These companies are permitted to supply products to the 83 dispensaries currently allowed to sell to the state’s estimated 2.6 million cannabis consumers, which represents 29% of the state population. The consumers of New Jersey have been eagerly waiting as they watch cannabis markets in nearby states like New York and Massachusetts take off with a proliferation of diverse product offerings. As such, the New Jersey consumers are well educated on the potential of cannabis but have limited access to quality products, a dynamic that has created pent up demand. Catering to a decerning market with high expectations will be a challenge that many producers will never overcome, but it is a huge opportunity for experienced operators like Fresh Cut Cannabis.

If you were to compare the national cannabis market today to the beer industry, there are thousands of producers creating cannabis products akin to Budweiser; generic and good enough to command a budget price. There are very few cannabis producers making the equivalent of upmarket, craft brews. More and more consumer data published by companies like BDS Analytics supports Fresh Cut’s strategy of creating a craft experience to stand apart in a sea of mediocre cannabis. Fresh Cut has created a comprehensive product strategy to deliver a craft experience. This strategy includes premiumization, customer-centric design, and strategic pricing. The company’s financing strategy, facility design, and team have all been developed to support this product strategy and allow the company to enter the market and become a driving force in New Jersey cannabis.

Creating premium cannabis requires close attention to detail. Only by having the right systems in place is this achievable on a repeatable basis. Fresh Cut is investing in the infrastructure required to consistently produce top-of-the line products. Cannabis plants can survive in a range of conditions, but the products are only optimized in a tight band of environmental parameters. The plants require specific amounts of light, nutrients, treated water, humidity, cooling, CO2 enrichment, and airflow, among other factors. To accommodate these needs, Fresh Cut has methodically designed a cultivation facility that most cultivators would only dream about. This facility will automate many aspects of the cultivation process and consistently deliver all of the inputs to the plant in exact amounts. The systems will also measure how well the plant uptakes and responds to inputs. This carefully selected suite of technologies will allow Fresh Cut’s well-trained staff to reduce distractions and menial tasks and pay more attention to ensuring the systems are as fine-tuned as possible.

Notably Fresh Cut has selected Fohse A3I lights, the most powerful LED grow light on the market. At 1500 Watts, the Fohse A3I’s provide more light to the plants, penetrate deeper into the plant canopy, and stimulate growth throughout the plant structure. To convert the light into additional biomass, Fresh Cut’s plants will require more nutrients, more CO2, and more water than other cannabis plants, allowing them to produce more cannabis per square foot and create higher concentrations of THC and flavor compounds. This is only one aspect of the facility that will allow Fresh Cut to grow more of the best products than the competition.

Even the highest quality cannabis can, and often is, irreparably degraded by poor post-harvest processing. To this end, Fresh Cut has designed its dry and curing facilities around the Cannatrol system. Fresh Cut is the sole company in New Jersey employing this innovative system, which applies technology utilized in curing meats and cheeses. The dry-and-cure process significantly impacts product quality. Widespread misconceptions around this process lead to common mistakes, contributing to the prevalent lack of flavor and hay-like taste in commercial cannabis. The Cannatrol system’s unique approach measures differentials in vapor pressures, rather than relative humidity, ensuring an optimal water activity level of 0.6. This water activity level provides the ultimate consumption experience while extending shelf stability and promoting flavor. Studies on cannabis that has been dried and cured using the Cannatrol system demonstrate a remarkable 16% increase in retention of flavor compounds compared to conventional industry methods.

To convert the premium cannabis into form factors that allow consumers to experience and celebrate all the flavor Fresh Cut has cultivated and safeguarded, we will implement cutting edge manufacturing equipment. For example, Fresh Cut will use the RollPros Blackbird to create truly differentiated prerolls. RollPros has sold just over 100 Blackbird machines globally, meaning the resulting pre-rolls are few and far between in the US. The vast majority of the industry has converged on machines like the Futurola Knockbox, which drop cannabis into a pre-roll cone, a semi-automated process that requires a lot of labor and requires the input material to be drier than is optimal for consumption. The Blackbird on the other hand is the only machine on the market that automatically rolls every pre-roll. The innovative method of automating pre-roll production requires significantly less labor and allows for product to be at optimal moisture content. Additionally, it allows the operator to control factors like paper tension during the rolling process and to use custom filters, both tools which can be used to optimize the user experience.

These carefully selected systems will allow Fresh Cut to consistently create products designed to the specifications most desired by consumers. The investment into cutting edge infrastructure will also limit operating expenses. Many operators try to compensate for the lack of comparable systems with more employees and are less able to consistently create products in spec. The systems that Fresh Cut has put in place will allow the company to create products more consistently at a lower cost per unit. Fresh Cut plans to offer premium products at an accessible price.

Fresh Cut has developed a strategic financing plan to accomplish these goals and fund the infrastructure and operational expenses required to uphold its bold product strategy. To date Fresh Cut has funded the licensing process, the securing of real estate, and the design of the facility. Going forward, the capex requirements of the project are significant. The most capital efficient way for the company to meet these costs was to partner with a real estate developer and engage them in a build-to-suit transaction. After interviewing with a number of groups, Fresh Cut has signed a term sheet with a large, New Jersey based developer with relevant construction and development experience. The developer will buy the real estate, build the facility to Fresh Cut’s specifications, and outlay all the capital required for construction and the outfitting of the facility. Fresh Cut will then lease the facility from the developer with a unique rent structure that is mutually beneficial for both parties.

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