Canadian Licensed Producers (LPs) have been a hot sub-sector of the burgeoning cannabis industry and this is a trend that we expect to continue. During the last year, we have seen a significant increase in the number of Canadian LPs and we are not surprised by the increase. Over the next year, we expect this trend to continue and we should see more Canadian LPs list on the TSX or TSX Venture Exchange.
Although this trend is exciting, it is important for investors to focus on Canadian LPs that have certain characteristics. When it comes to analyzing these types of opportunities we are targeting companies that have significant catalysts for growth, that are led by a management team with a proven track record of success, that are well capitalized and well positioned to take advantage of organic and inorganic growth opportunities, and also have an attractive valuation.
One company that meets this criteria is Aleafia Health (ALEF.V) (ALEAF) and we believe that this is an opportunity that investors need to be watching. Earlier this month, the company completed the acquisition of Emblem, a leading Canadian cannabis producer, and we are bullish on the growth prospects of the combined company.
2019 has been a banner year for Aleafia Health and we are closely following how it continues to advance its fundamental story. Earlier this year, the company was named as the 2019 TSX Venture 50 top performing company of the year and we are favorable on this achievement. Aleafia Health is in the early innings of a major growth cycle and is led by a management team with a proven track record of success. We are confident in the management team’s ability to execute and will monitor how the team executes from here.
An Attractive Growth Story
One of the reasons why we are favorable on Aleafia Health is due to its acquisition strategy. The company has been focused on making accretive acquisitions and has been focused on acquiring businesses that generate significant cash flow and are attractively valued. We are favorable on this strategy as well as on the acquisitions that the company has made and believe that Aleafia Health represents an attractive growth opportunity.
Last year, Aleafia Health acquired Canabo Medical Clinics which has been capitalizing on the cannabis clinic market. We are favorable on the cannabis clinic opportunity due to the amount of data that is being generated by the medical cannabis patients that are visiting these clinics. We believe that the acquisition of Emblem has strengthened Aleafia Health’s leverage to this opportunity and will monitor how the team executes on it.
One of the reasons why we are favorable on Emblem is due to its attractive operating structure. The company is focused on cannabis production through its Emblem Cannabis division, on patient education through its GrowWise Health division, and on the pharmaceutical market through its Emblem Pharmaceuticals division.
We are favorable on the synergies that can be created between the two businesses and believe that this is an important part of the story. When you combine Aleafia Health’s Canabo Medical Clinics subsidiary with Emblem’s GrowWise Health subsidiary, you have a leading Canadian clinic network with access to 40 national medical clinics and education centers that have served almost 60,000 patients.
We believe that Emblem and Canabo Medical Clinics represent strategic acquisitions and are favorable on the growth prospects associated with these transactions. We have conducted research into these transactions and believe that these companies were trading at significant discounts when compared to their peers at the time of the acquisition.
A Company with Significant Catalysts for Growth
When it comes to the Canadian cannabis market, the acquisition of Emblem significantly improves Aleafia Health’s position in this market. The acquisition also enhances Aleafia Health’s leverage to several international cannabis markets and we are favorable on the growth prospects associated with this.
One of the ways that Aleafia Health will benefit from the acquisition of Emblem is through the previously announced joint venture with German pharmaceutical wholesaler Acnos Pharma GmbH. We are favorable on the German medical cannabis market and believe that this relationship provides the company with the opportunity to expand into new markets in Europe.
The acquisition creates a new Canadian medical cannabis leader that will operate the country’s largest national clinic network and will have improved operational scale with planned annual capacity of approximately 138,000 kg (including committed supply agreements), Canadian and expanded global distribution, and a robust branding and product development platform.
Focused on Capitalizing on Four High Growth Verticals
Although Emblem was trading at a significant discount to its peers, the company has an attractive operating structure and we believe that the market underappreciated this opportunity. One of the reasons why we believe that Emblem was trading at a discount is due to the changes in the management team in late 2017 and believe that these changes overshadowed the positives of the company.
Now that the acquisition of Emblem is complete, Aleafia Health plans to capitalize on high-growth opportunities and leverage international expansion across four verticals: Cannabis Production, Health and Wellness, Cannabis Education and the Consumer Experience. Aleafia Health will be able to leverage Emblem’s extraction and product innovation to sell high-margin medical cannabis directly to its patient base for the first time. This represents a significant opportunity for Aleafia Health as well as its patient base, which can access Emblem’s differentiated high-margin derivative cannabis products.
Another way that Aleafia Health will benefit from the acquisition of Emblem is through the Provincial supply agreements that Emblem had entered into. These agreements will allow Aleafia Health to sell products in Ontario, Saskatchewan, British Columbia and Alberta, and we are excited about this opportunity. The company plans to gain national medical distribution through Emblem’s agreement with Shoppers Drug Mart and gain national retail distribution through Fire & Flower, Starbuds and the emerging OnePlant network.
A Company that is on the Move
Aleafia Health represents a multi-faceted growth story and we believe that the acquisition of Emblem has significantly improved its position in the Canadian cannabis market. We are favorable on the growth prospects associated with the European medical cannabis market and will monitor how the team executes on this.
Over the next year, we expect to see Aleafia Health significantly advance its fundamental story and will be closely following this opportunity. When we look at the company, we see a business that is in the early innings of a major growth cycle and we are favorable on the number of levers that it has for growth.
Although Aleafia Health has been executing flawlessly, the shares have been under pressure and have been coming off its 2019 highs. The company is led by a management team that has a proven track record of success and we are favorable on its ability to execute. When it comes to the cannabis industry, investors need to take a look at the management team and we believe that this is an area where Aleafia Health excels.
We believe that Aleafia Health represents a compelling play on the burgeoning cannabis market and this is an opportunity that investors should be watching. To learn more about Aleafia Health, please contact email@example.com
Pursuant to an agreement between StoneBridge Partners LLC and Aleafia Health Inc. (ALEF) we have been hired for a period of 180 days beginning February 1, 2019 and ending August 1, 2019 to publicly disseminate information about (ALEF) including on the Website and other media including Facebook and Twitter. We are being paid $7,500 per month (ALEF) for or were paid “ZERO” shares of unrestricted or restricted common shares. We own zero shares of (ALEF), which we purchased in the open market. We plan to sell the “ZERO” shares of (ALEF) that we hold during the time the Website and/or Facebook and Twitter Information recommends that investors or visitors to the website purchase without further notice to you. We may buy or sell additional shares of (ALEF) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.