Portal - Company - IVXX/Terra Tech

Company Name: Terra Tech Corp www.terratechcorp.com www.ivxx.com Geographic Locations: California, Nevada

Categories: Concentrates, Others, Flowers List of Brands: IVXX Subcategories: Concentrates: Shatters, Waxes, Cartridges Flowers: Indica, Sativa, and Hybrids Others: Pre-rolled Joints

Executive Summary

• IVXX ranks 49^th amongst concentrates brands in California, with waxes ranking 9^th, cartridges 45^th and shatter 54^th
• IVXX is owned by Terra Tech, a publicly traded company that also owns the growing chain of Blüm dispensaries in California and Nevada
• IVXX is a relatively new brand offering waxes, shatters, cartridges, flower and pre-rolls
• Distribution is strongest in the Bay Area, near to the extraction facilities and flagship dispensary in Oakland
• Their primary consumer base is young, single, and middle income consumers looking for consistency and taste
• Satisfaction ratings are moderate and many consumers are unlikely to purchase the product again

Methodology

Our company profiles leverage our multi-source methodology to give you the most complete view of each company from all sides. The insights provided on consumer demographics and feedback stems from Brightfield Group’s survey of more than 1,200 California medical patients in 2016. Detailed information on precise questions providing each graph and data point can be found in the report's endnotes. Market share and distribution data is based on our brand tracker, which analyzes digital menu audits from more than 1,200 dispensaries and delivery services throughout the state on a monthly basis. This is then evaluated with select POS data, survey data and interviews with dispensary owners which are used to weigh our algorithms.

Figure 1: IVXX Performance in Major California Markets (August 2016): Concentrates Category^[1]

Market	Percent of Dispensaries Carrying the Brand	Brand Share of Category	Brand Ranking in Category	Change in Ranking Since January 2016
California	4%	0.1%	49	-32
Sacramento	10%	0.6%	16	+22
Bay Area	11%	0.6%	8	+40
Los Angeles	2%	0.04%	114	-84
Orange County	8%	0.1%	59	-27
San Diego	7%	0.3%	35	-13

Geographic Distribution

Terra Tech Corp founded the IVXX brand in September 2014 and has not built up an extensive distribution network. To date, the two leading brands in the concentrates category (in which IVXX competes most heavily) are distributed in just over 15% of the state’s dispensaries. This is 5 times greater than the share of state dispensaries selling IVXX products. Both of these leaders, Moxie Seeds & Extracts and Eureka Extracts, are strong in Los Angeles. Moxie Seeds & Extracts is also well-represented in the San Francisco Bay Area.

IVXX, with an extraction facility in Oakland, has focused initially on distributors in central California. This drove regional distribution to expand quickly in the first half of 2016, with the share of dispensaries carrying the brand’s concentrates products increasing by 4 times in Sacramento and over 7 times in the Bay Area from January to June. This propelled IVXX’s distribution past Moxie Seeds & Extracts in both markets.

At current distribution growth rates, IVXX products are set to become some of the Bay Area’s most widespread concentrates. There are just 7 other brands in this space that currently exceed IVXX’s distribution. Most have been growing in market share, but not as strongly as IVXX. The Bay Area’s current leading concentrates brand, Guild Extracts, is in about 3 times as many local dispensaries as IVXX and has approximately 4 times as much market share. Unlike most other brands in the space, Guild Extracts has grown more quickly than IVXX this year.

Terra Tech Corp continues to announce distribution agreements with new dispensaries and will likely see its IVXX brand continue to expand rapidly in the Bay Area, Sacramento, and other northern California markets. Distribution and market share remain more limited in southern California.

Consumer Profiles

Customers who choose IVXX flowers are price sensitive but willing to pay a premium for healthier, high-quality cannabis products. Though flower consumers in general tend to be less concerned about price than consumers in other categories, likely due to the relatively low price of flowers compared to processed cannabis products, 50% of patients who buy IVXX flowers say they wish the brand’s prices were lower.[2] This suggests some resistance to paying a premium for branded flower products and suggests the consumers who IVXX flowers appeal to may not be willing to purchase the brand’s concentrates. IVXX waxes, sh atters and cartridges will likely be pursuing new consumers who are unfamiliar with the brand.

However, there appears to be a group of consumers to whom the IVXX brand appeals. These are young, single people (more likely to be women) with relatively low household income.[3]  They are more likely to care about health and quality, taking into account certain aspects such as lab certifications when making purchases.[4]

There are similarities between these the characteristics of concentrates consumers, but there are also differences. Concentrates consumers care about lab certification and organic production,[5] but tend to be older, wealthier, and more likely to be male and married than the core IVXX consumers identified above.[6] These differentiated customer groups demonstrate the limits of IVXX’s strategy of introducing itself to the market through branded flower products in advance of shifting its focus to concentrates.

Figure 2: Average Income of California Medical Marijuana Customers by Brand

Figure 3: Drivers of IVXX Sales

Consumer Satisfaction

When asked about specific features of IVXX products, customers tend to be more satisfied than they are with other brands.[7] However, they are less likely than other customers to say they would purchase the product again. The share of customers who say they are unlikely or undecided about purchasing the brand’s products again is 38%, nearly twice the 20% who said this about the average brand. The likely explanation is customers appreciate the quality of IVXX flowers, but do not find them sufficiently superior to other flower products to justify the premium price. The concentrates market will allow more room for differentiating based on quality, which may mitigate this concern as the company transitions.

Figure 4: Overall Satisfaction Levels across Leading Medical Marijuana Brands

Consumer Preferences

IVXX customers gave positive reviews regarding flavor and package labelling.[8] Unlike many flower products, IVXX distributes its medicine in sleek, professional packaging. The company is retaining this strategy in its concentrates lines as it transitions to a category that has a greater frequency of products with professional appearances, but affords opportunities for excellent packaging to stand out. Intriguingly, IVXX packaging does not prominently display lab certifications or other details that seem to be important in driving health and quality-conscious consumers toward the brand.[9] It may be the sleek packaging itself transmits a message about the product’s quality. When compared to other top 10 concentrates brands by market share in the Bay Area, only Guild Extracts packaging resembles IVXX’s.

Taste, on the other hand, does not play as significant a role in driving consumers toward concentrate products.[10] Reviews for the taste of existing IVXX products may not play a large role in attracting a new category of customers, but the ability to produce excellent flavor will be important to building brand loyalty. It will also be important for IVXX concentrates to perform as strongly in taste reviews as the company’s flower products.

When asked about other product characteristics, IVXX customers generally give satisfaction scores similar to those of the average product. The exception is price, with IVXX customers approximately 10% less likely to be satisfied. This weakness may be less pronounced in the concentrates category, which tends to attract less price-sensitive consumers.[11]

Brand Portfolio and Competitors

The Bay Area concentrates market, where IVXX is most prominent, has been quite volatile since early 2016. Only 3 of the top 10 brands by market share were in the top 10 in January. Such a high degree of fragmentation means large investments or partnership agreements can quickly propel upstart brands into leadership positions. However, it is important to differentiate between the companies that have done this in the Bay Area only and those that have been able to achieve robust growth statewide.

Guild Extracts and Full Melt posted strong expansion in the Bay Area, but actually grew more quickly in Los Angeles. No other leading Bay Area brand achieved this. The complexities of Los Angeles’s retail landscape suggests companies able to focus their growth in the area may have developed stronger marketing and distribution capabilities than their competitors whose successes have been focused in the Bay Area. This should give them an advantage through increased exposure to Los Angeles’s much larger market.

Other leading Bay Area brands were able to expand into Los Angeles. Clear Concentrates, X-Tracted Labs, Gold Drop, BOG and Pop Naturals have proven their ability to grow statewide, but not to the same extent as Guild Extracts and Full Melt. Gold Drop, BOG, and Pop Naturals are the 3 brands that entered the Bay Area top 10 in 2016 and have retained their leadership positions throughout the year. However, their growth rates have been much lower than Clear Concentrates and X-Tracted Labs.

Figure 5: Statewide Brand Share by Subcategory (August 2016): Wax

Brand	Percent of Dispensaries Carrying the Brand	Brand Share of Category	Brand Ranking in Category	Change in Ranking Since January 2016
Pure Xtracts	0.2%	2%	1	+200
Rumpelstiltskin Extracts	0.2%	1.4%	2	+48
Pure Vape	0.3%	1.2%	3	+70
Clear Concentrates	0.3%	1.1%	4	+13
Waxman	1%	1%	5	+8
BOG	0.2%	0.9%	6	+14
Prime Extractions	0.2%	0.9%	7	+11
Brite Labs	0.6%	0.9%	8	+16
IVXX	0.5%	0.9%	9	-2
FlavRx	0.2%	0.7%	10	+28

The rest of the top 10 (IVXX, Oakland Extracts, and Absolute Extracts) actually lost ground statewide in 2016. Despite posting strong performances in the Bay Area, these brands are at a disadvantage to the rest of the top 10 Bay Area concentrates brands. This suggests continued strength in the Bay Area is vital for all three to remain prominent California concentrates brands.

In the Bay Area, IVXX’s rapid rise has put the brand in direct competition with leading concentrate brands like Moxie, BOG, POP Naturals, West Coast Cure, and Guild Extracts. IVXX has done well locally in the wax subcategory, but Absolute Extracts and POP Naturals have a strong lead over IVXX in cartridges. However, IVXX only launched their line of cartridge products in April 2016 and has already announced large distribution and expansion agreements. Success in the cartridge market, which is smaller than the market for shatter and wax but growing quickly, would be an important step forward for IVXX in differentiating itself from Guild Extracts, BOG, and Moxie (which do not have robust cartridge businesses at this time). If IVXX continues to transform itself into a company focused on waxes and cartridges, it would rival X-Tracted Labs. X-Tracted Labs outranks IVXX at a statewide level in both subcategories, but has been stagnant in Bay Area market share this year.

Figure 6: Statewide Brand Share by Subcategory (August 2016): Shatter

Brand	Percent of Dispensaries Carrying the Brand	Brand Share of Category	Brand Ranking in Category	Change in Ranking Since January 2016
House of Loud	0.2%	0.1%	52	+23
Imperial Extracts	0.2%	0.1%	53	-26
IVXX	0.2%	0.1%	54	-46
Blizzard Extracts	0.1%	0.1%	55	-4

The Bay Area cartridges market, where IVXX has introduced its new line of cartridge products, is consolidating. Half of its top 10 brands by market share have at least doubled their market share since January. The leaders in this space, O.penVape and Bloom Farms, each have approximately 18% of the local cartridges market. The next-strongest brand, Kurvana, trails the leaders at just 7% but has expanded rapidly from under 1% in January. IVXX ranks far behind with just 0.2% of the market, but this actually represents strong growth from earlier in the year. IVXX ‘s market share has doubled since June and the company now ranks 23^rd in the regional cartridge market, up from 42^nd at mid-year. Among the area’s top 25 brands by market share, O.penVape, Kurvana, Jetty Extracts, Eureka, and Gold Drop are all growing more quickly. However, IVXX’s growth rate since mid-year has been faster than most and almost as fast as 2^nd-ranked Bloom Farms. This is a notable performance in a competitive subcategory, but it is not enough to compensate for the lead in market share possessed by O.penVape, Bloom Farms, Kurvana, and others in what is an increasingly important market.

Figure 7: Statewide Brand Share by Subcategory (August 2016): Cartridges

Brand	Percent of Dispensaries Carrying the Brand	Brand Share of Category	Brand Ranking in Category	Change in Ranking Since January 2016
Evoxe Laboratories	0.2%	0.05%	43	NA – brand not present in January
Loaded	0.6%	0.05%	44	+41
IVXX	0.5%	0.05%	45	NA – brand not present in January
LoudVape	0.6%	0.04%	46	NA – brand not present in January

Company positioning

Significant opportunities exist for all the Bay Area’s leading concentrate companies to grow quickly. Those that emerge will likely do so due to their ability to identify market trends, access the financing necessary to fund expansion, and smoothly manage the potential for the opening of a recreational market. IVXX appears to be as well-positioned as any of its competitors to succeed on all three fronts, except for its relatively unique position as a publicly-traded company. However, the company’s most recent financial reports raise questions regarding the viability of its business model.

Competitive advantages

Terra Tech’s recent acquisition of Blüm Oakland, a large, established dispensary located near the IVXX extraction lab, offers interesting opportunities as a vertically integrated company. The acquisition may also be helpful in laying the foundation of a recognizable national dispensary brand. Terra Tech has another Blüm dispensary in Las Vegas and is set to open two new Blüm outlets in Nevada and another in San Leandro California. The unopened Nevada retail outlets may be contributing to the company’s $55 million deficit, but Blüm Oakland may also be contributing to this. Prior to its acquisition by Terra Tech in 2015, Blüm co-owner Martin Kaufman cooperated with federal agents to build a bribery case against a former United Food and Commercial Workers Union organizer, Dan Rush. This was not well received by some in the local cannabis community and may be contributing to weaker sales for the dispensary. Cash flow from Blüm operations has started to make a difference in the company’s most recent financial reports though, and it appears that ownership of this important retail outlet is playing a role in IVXX’s extremely rapid growth in the Bay Area concentrates market.

Opportunities / Threats

IVXX’s momentum should not be overstated. Its products barely exist in Los Angeles, the largest California medical cannabis market. In Los Angeles, local brands dominate the market and create barriers to entry for brands from the northern part of the state. Inability to secure a leadership position in the Los Angeles concentrate market could limit IVXX’s scale. It is possible the company is positioning itself for the upcoming consolidation of Los Angeles‘s dispensary landscape before attempting to achieve more local market share. Terra Tech’s retail strategy appears to be based around expanding its line of large Blum dispensaries. The downside would be failure to participate in shaping subcategories like wax, shatter, and cartridges in the country’s most important market.

Another unanswered question concerns IVXX’s product portfolio. After initially leveraging its high-tech grow operations by selling raw flowers and lightly processed pre-rolled products, the company appears to be successfully gaining market share. This is primarily due to investments in extraction labs, a concerted effort to get their concentrates products into Bay Area retail outlets, and partnerships to bring concentrated cartridge products to market. IVXX has not clarified the role its original products will have moving forward, but the relatively high level of customers who are not sure they would purchase IVXX flowers again suggests the company should consider whether these products belong in its portfolio.

The biggest threat to IVXX, aside from unexpected regulatory action[12], is the nature of the concentrates market itself. Extreme fragmentation makes all brands vulnerable to strong, well-funded entrants. This is the risk Moxie, BOG, HGH Extractions, POP Naturals, and West Coast have faced in 2016 as rapid growth from brands like Guild Extracts and IVXX threaten these brands’ dominance as leaders of the Bay Area concentrates market. IVXX is particularly vulnerable to displacement due to its extreme reliance on a small number of Northern and Central California markets. The benefits of widespread distribution are apparent in the case of Moxie, which has retained a dominant number one position in the statewide concentrates market (despite falling from first place in the Bay Area at the start of the year to 12th place in August).

[1]IVXX also sells pre-rolled joints, which are traditionally grouped in the Others category of marijuana markets. A table indicating IVXX’s presence in the Others category in California has not been included here because the company ranks very low (235^th statewide and similarly low in each regional market) and its pre-rolled joints tend to be present in less than half a percent of dispensaries. This is also the case for the company’s branded flower products, which are grouped in the Flower category of the market.

[2] Only about 35% of all flower consumers say this.

[3] 88% of IVXX customers are under 35 years old, compared to just 51% of all CA medical patients surveyed.

56% of IVXX customers reported their marital status to be single (never married), compared to 41% of all CA medical patients surveyed.

56% of IVXX customers reported their gender to be female, compared to 48% of all CA medical patients surveyed.

69% of IVXX customers reported household incomes of less than $50,000, compared to just 49% of all CA medical patients surveyed.

[4] When asked why those choose a product, 19% of IVXX customers said, “It is organic, while others are not” and 13% said, “It is lab certified, while others are not”. For the average brand, 10% of customers pointed to organic products and 7% to lab certification.

[5] When asked why they chose a product, 10% of concentrates customers said, “It is organic, while others are not” and 9% said “It is lab certified, while others are not.”

[6] 51% of all concentrates customers surveyed were under 35 years old, compared to 88% of all IVXX customers.

49% of all concentrates customers surveyed reported household incomes under $50,000, compared to 69% of IVXX customers surveyed.

55% of all concentrates customers surveyed reported their gender to be male, compared to 44% of IVXX customers.

36% of all concentrates customers surveyed reported they were married, compared to 25% of IVXX customers.

[7] When asked to rate their level of satisfaction with a product’s taste, 86% of IVXX customers said they were extremely satisfied. For the average brand, this share was 54%.

When asked to rate their level of satisfaction with a product’s price, 43% of IVXX customers said they were extremely satisfied. For the average brand, this share was 34%.

When asked to rate their level of satisfaction with the dosage size a product offers, 57% of IVXX customers said they were extremely satisfied. For the average brand, this share was 43%.

When asked to rate their level of satisfaction with a product’s ability to produce desired effects, 71% of IVXX customers said they were extremely satisfied. For the average brand, this share was 49%.

When asked to rate their level of satisfaction with the quality of ingredients used in a product, 72% of IVXX customers said they were extremely satisfied. For the average brand, this share was 46%.

When asked to rate their level of satisfaction with a product’s package labelling, 72% of IVXX customers said they were extremely satisfied. For the average brand, this share was 37%.

[8] When asked to rate their level of satisfaction with a product’s taste, 86% of IVXX customers said they were extremely satisfied. For the average brand, this share was 54%.

When asked to rate their level of satisfaction with a product’s package labelling, 72% of IVXX customers said they were extremely satisfied. For the average brand, this share was 37%.

[9] When asked why those a product, 19% of IVXX customers said, “It is organic, while others are not” and 13% said, “It is lab certified, while others are not. For the average brand, 10% of customers pointed to organic products and 7% to lab certification.

[10] When asked why those a product, 25% of IVXX customers said, “I liked the taste.” This is the same share as said this for the average concentrate brand.

[11] 53% of concentrates customers reported household incomes under $50,000, compared to 61% of all CA medical patients surveyed.

[12] A specific threat to the concentrates market could come in the form of proposals to limit THC content, as was proposed in Colorado in April 2016. This would have catastrophic effects on the concentrates category of the market. If the proposal was limited to recreational products, IVXX and other brands could continue operations in the medical market. If medicinal products were affected as well, it is possible, but unlikely, that IVXX could remain in existence (unlike pure concentrates companies) by shifting its focus back to flowers and pre-rolled products. This would dramatically reduce growth prospects.