PAX, the Silicon Valley-based company behind perhaps the most well-known cannabis vape brand in the US, is moving quickly in Canada. The company raised a round in April that valued it just below $2 billion. Then just two months later, in June—the same month that officials in Canada announced long-awaited regulations for edibles and concentrates—the company announced four powerhouse Canadian launch partners for its Era product, an oil vape: Aurora, Aphria, Organigram, and Supreme Cannabis. When sales of edibles products legally begin in December 2019, these companies, which are among the highest valued of their kind in the world, will provide the cannabis oil for the PAX Era pods. (Era is already available in the US, as are PAX’s older cannabis flower vapes.)
Just before the partners were made public, PAX announced that the company’s first ever general manager in Canada would be Tim Pellerin, formerly Senior Vice President and Chief Operating Officer of Nova Scotia Liquor Corporation, the same state-run corporation that oversees cannabis in the province.
Cannabis Wire co-founder and editor Nushin Rashidian spoke with Pellerin to learn more about the company’s ambitions in Canada, the country leading the global cannabis industry. The conversation has been edited for length and clarity.
Nushin Rashidian, Cannabis Wire: Let’s start with PAX’s expansion into Canada. How long has that been in the works?
Tim Pellerin, PAX general manager for Canada: We’ve been thinking about Canada for a good part of the last couple of years, as federal legalization began being discussed. We’ve been doing business in Canada on our base devices—PAX 2, PAX 3—for some time, but really monitoring the federal activity. So, it was really the dual launch between year one with flower, capsules, etc, and then the recently announced December date that will allow concentrates, edibles, and other forms coming to market.
Cannabis Wire: What’s different about the ability to roll out something like Era in Canada? Why is that different for PAX?
PAX: Canada is really taking a global leadership position in the cannabis industry. PAX has an opportunity to utilize the fact that Canada is federally regulated and some of the constraints in other markets that we participate in aren’t quite the same. And so we can use Canada to test some things, and still obviously be well within the federal guidelines, but try some things we haven’t tried throughout the other parts of the world. And then hopefully use those examples to scale up or leverage as other markets and opportunities come forth, in particular in the US.
Cannabis Wire: What sort of opportunities does the national legalization in Canada present for PAX? How does it allow you to experiment?
PAX: We’re really, in many ways, starting our business in Canada with the launch of our Era device and our first four brand partners. Those partners, they give us diversity of concentrate, diversity of customers, diversity of regionality, and continuity of supply. So, you kind of have to establish that base in Canada first. And, once that base is established, obviously there’s many unique ways in which we can move forward looking at additional partnerships or ultimately some type of vertical integration or different ways of thinking about our business.
Cannabis Wire: Is PAX eventually going to produce its own oils, its own concentrates, its own products, instead of having to partner with other people who are producing these?
PAX: I think it’s really early to say, quite candidly. We have to establish our presence in Canada, build our brand, build our platform, build our brand awareness. Right now we don’t have any timeline on that decision. It’s certainly something that we have the ability to do in Canada. But there’s no work being done on that currently.
Cannabis Wire: How did PAX choose its Canadian partners?
PAX: A bit of art and science, but certainly more on the science side. Having come from the retailer background, certainly you realize in Canada all producers are not created equal, whether it’s how they were developed or what their objectives are as an organization. So, first and foremost, we looked for a proven track record of success in Canada, and with Canadian consumers and customers. Are they making quality products that are consistent with our quality expectation and premium position? Have they ensured the continuity of supply? Is there a national scope in terms of where they currently are, where products are listed?
We want people who are going to look for the long game—the marathon not the sprint.
Cannabis Wire: Where do you see consumer preferences going?
PAX: I’ve done a lot of modeling on the cannabis category in Canada. So, if you look at some of the more recent US states to legalize—and by recent, in the last few years versus the historic pioneers in the category—vape as a percent of the category is much higher and growing exponentially, versus traditional formats like dried flower. And so in Canada, if I were to say on average, the expectation is that the vape category could easily end up, within twelve to eighteen months at the most, between 20 and 30 percent of the total business or the total category.
Having said that, you know, dried flower still has a very loyal following. It’s a very specific ritual. There’s a nuance that many enjoy as part of that, and we’re not walking away from that. It built our base business all the way from PAX 1 to PAX 3, and there’s certainly no moving away from those devices. Era does provide technology that will allow us to continue to advance.
One of the great things about Canada being federally regulated, we’re going to see more research and investment in understanding the category and the effect on the body more and more, now that it’s been legitimized. So, there’s an exciting path ahead for both product forms for quite a period of time.
Cannabis Wire: PAX has a very recognizable vape brand. But there are so many devices coming out, especially as vaping in general becomes more popular. So how does PAX differentiate itself?
PAX: We’d be naive to not think there’s going to be formidable competition.
We come back to the fact that we’re not just a device. We believe we’re a leading consumer technology and software company and brand that has global aspirations in terms of recognition of our brand and the quality that it stands for. So we think the products design, the technology behind it, keep advancing.
Cannabis Wire: Talk a little bit about the consumer education. What does that look like to you?
PAX: The quote I have been quoted oftentimes using—I hope I’m right— is: ‘This is the worst it will be for all of us.’ I think we, in Canada, are so fortunate that we have leadership at the federal level to recognize both the marketplace and commercial opportunity as well as the societal opportunity that came with legalization. Now, having said that, they did so in a way that is extremely constrained to start. And from their perspective, I can understand that. It’s always easier to loosen up regulation than it is to pull back.
As leaders, even when the rules aren’t well defined, it’s our job to be on the right side of them. Because sometimes it’s unclear, and you see organizations that are pushing that envelope, but we’ll certainly try to continue to take the quote unquote higher road on it, and be able to educate folks who will become loyal to our platform and our partners when they try our product and use it the right way.
Correction: A previous version of this story stated that PAX had an IPO in April, and has been updated to reflect that PAX raised a round.
