During the last year, we have noticed a significant increase in the number of companies that are focused on the California cannabis market. From acquisitions to strategic partnerships, we have seen companies take major steps to improve their leverage to this burgeoning cannabis market and this is a trend that we have been closely following.
California is the world’s largest cannabis market and we are favorable on the steps the state has taken so far this year to crack down on illegal cannabis operations. The focus on shutting down the black market in California is one of the biggest potential catalysts for growth for companies that are focused on this market and we are favorable on the recent trend.
Going forward, we are bullish on the growth prospects associated with the California market and believe that the state’s focus on regulation significantly contributes to the overall success of the legal market. Today, we have highlighted 5 companies that are levered to this burgeoning cannabis market and that are well positioned to benefit from the growth of this market.
IIPR: The NYSE Cannabis REIT is Highly Focused on California
Innovative Industrial Properties, Inc. (IIPR) has been highly focused on the US cannabis market and is the only cannabis focused real estate investment trust (REIT) to trade on the New York Stock Exchange (NYSE). We have been following the company since its inception and are impressed by the way the story has evolved over the last year.
By executing on a series of acquisitions, Innovative Industrial Properties has become one of the largest cannabis companies in the world and has significant growth prospects. As of September 12th, the company owned 30 properties (located in Arizona, California, Colorado, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New York, Nevada, Ohio and Pennsylvania), totaling approx. 2.2 million rentable square feet that are 100% leased with a weighted-average remaining lease term of approx. 15.9 years.
Last week, the NYSE traded cannabis REIT completed the acquisition of a four-property portfolio in southern California which comprises approximately 79,000 sq. ft. of industrial space in total. The purchase price for the portfolio was approx. $17.3 million in the aggregate (excluding transaction costs). Concurrent with the closing of the purchase, the company entered into a long-term, triple-net lease at each property with a subsidiary of Medical Investor Holdings LLC (d/b/a Vertical) for continued operation as licensed cannabis cultivation, extraction, manufacturing and distribution facilities in accordance with California regulations.
Vertical is a multi-state operator licensed for cannabis cultivation, extraction, manufacturing and distribution in California with cultivation operations in Arizona and Ohio, and an extensive portfolio of branded cannabis products. Vertical’s management team has decades of experience in starting, building and running highly successful businesses in the alcohol, agriculture, consumer product goods, distribution, entertainment, food, healthcare and medical industries.
As of September 12th, Innovative Industrial Properties has invested approx. $287.2 million in the aggregate (excluding transaction costs) and has committed an additional approx. $98.8 million to reimburse certain tenants and sellers for completion of construction and tenant improvements at its properties. We are bullish on the growth prospects associated with the California market and will monitor how the NYSE traded cannabis REIT continues to focus on this burgeoning opportunity.
1933 Industries: A High Growth Story with an Attractive Valuation
During the last year, 1933 Industries (TGIF.CN) (TGIFF) has been nothing short of an execution story and has been selling products across the US. By focusing on the development of both cannabidiol (CBD) and tetrahydrocannabinol (THC) products, the company has been able to secure distribution across 46 states for its CBD products and across 3 states for its THC products (California, Colorado, and Nevada).
Last month, 1933 Industries signed a management services agreement with Green Spectrum Trading, a strategic partner which operates as a licensed cannabis cultivator, manufacturer and distributor, with a pending home delivery business license. According to Statista, the California cannabis industry is projected to generate more than $6.59 billion in sales by 2025 and we are bullish on the growth prospects associated with this relationship.
From a geographic standpoint, the expansion into California makes a lot of sense. By focusing on the most attractive cannabis markets on the west coast of the US, the company is not spreading itself too thin from a human capital standpoint and we find this to be significant. From an execution standpoint, we believe that it will be easier for the company to manage these markets and expect California to be a major revenue driver in 2020 and beyond.
When it comes to 1933 Industries, the management team has been executing on a strategy to enter burgeoning cannabis markets across the US and represents a multi-state opportunity. This is much different than a multi-state-operator which has to spend a several hundred million dollars to enter these markets and we are favorable on this approach. From a capital outlay and an efficiency standpoint, 1933 Industries represents an attractive play on the US market and we believe that the market under appreciates this aspect of the story.
From a valuation standpoint, 1933 Industries is trading at a significant discount when compared to its peers and this is an opportunity that is flying under the radar. Over the next few months, we expect to see the company execute on several growth initiatives that can drive the story forward and we find this to be significant.
ManifestSeven: A New California Listing to be Watching
ManifestSeven (M7) is expected to commence trading on the Canadian Stock Exchange (CSE) under the symbol, MSVN, and has been highly focused on targeting the most attractive verticals of the cannabis supply chain in California. The company is a first-of-its-kind cannabis logistics business that has created a fully integrated omnichannel platform for both companies and consumers through its distribution hubs across the state.
One of the reasons we are excited about ManifestSeven is due to the number of avenues for its growth and we find this to be a significant aspect of the story. The company has created a way to service and support every vertical in the supply chain and we are bullish on the growth prospects associated with the platform.
Another reason we are excited about this opportunity is due to the management that is backing the operation. ManifestSeven is led by a team that has been able to identify and capitalize on major gaps in the cannabis industry. Last year, the company set out to solve supply chain issues in California and developed an omnichannel integration platform to satisfy this need. The management team recognized a need for business-to-business (B2B) infrastructure from a license perspective, B2B services particularly as they relate to distribution, packaging and manufacturing.
2019 has been a banner year for ManifestSeven and we are impressed with how the fundamental story has advanced and evolved. Through a series of acquisitions, the company has been able to significantly enhance the operation through the acquisition of a foundational retail cannabis delivery business, MDelivers, and through its retail cannabis subscription business, MyJane, and we are bullish on the growth prospects associated with these transactions.
ManifestSeven has been highly focused on the California cannabis market for a number of years and has a proven track record of success when it comes to driving growth across a diverse platform of assets. In 2018, the company generated more than $5 million of revenue and these numbers have ramped higher this year. ManifestSeven expects to record strong growth on a going forward basis and reported to have a September run rate revenue target of more than $65 million.
When analyzing a cannabis company, it all starts with the management team and this is also where ManifestSeven excels. The company is a new listing that we are excited about and an opportunity to put on your radar. Over the next year, we expect to see the company enhance its current platform through continued execution and through acquisitions.
Sunniva: A Growth Story to be Watching
The last few months have been significant for Sunniva (SNN.CN) (SNNVF) which has become laser focused on the California market. Prior to this announcement, the company was also highly focused on the Canadian opportunity but has been selling assets and has been strengthening its balance sheet.
Last week, Sunniva reported that it would sell Natural Health Services, Ltd. (NHS) to The Clinic Network Canada, Inc. (TCNC), one of Canada’s largest provider of ‘out-of-hospital’ chronic pain management services, for CAD $9.0 million subject to customary working capital adjustments at closing. The purchase price will be paid by way of CAD $4.5 million in cash and CAD $4.5 million through the issuance of 4,500,000 preferred shares of TCNC.
This came shortly after Sunniva announced a share purchase agreement with CannaPharmaRx to sell Sunniva Medical Inc. (SMI), in an all-cash deal for around CAD $20 million minus outstanding liabilities in SMI which includes the property mortgage. These two transactions reduce the exposure to Canada and we are bullish on the growth prospects associated with the California market.
A few months ago, Sunniva implemented a significant shakeup from a management standpoint and we will monitor how the new leadership team is able to drive the operation forward. Sunniva has come well off its recent lows and this is an opportunity that we continue to closely monitor.
Halo Labs: California has Been a Major Growth Driver
During the last year, Halo Labs (HALO: NEO) (AGEEF) has significantly advanced its fundamental story and has been executing on several major growth initiatives. The company has reported strong revenue growth and much of this growth can be attributed to the California side of the business.
A few months ago, Halo Labs issued an update on its California operations and we found the information as to the sale of its branded products to be significant. In addition to providing bulk and white label products to its California customers, Halo Labs is also offering its own branded products to dispensaries through C4 Distro in Southern California.
The performance of Halo Labs’ branded products during the initial launch was impressive and we will monitor how the products continue to gain traction. Through C4 Distro, Halo Labs is executing on a targeted launch strategy with key dispensary partners and expects to expand the distribution of its branded products into approximately 200 dispensaries by the end of Q2 2020. Once Halo Labs hits this level of distribution, the company’s branded products will be generating significant revenues and we are bullish on this.
Halo Labs is a proven operator when it comes to cannabis extraction and the company provides its cannabis concentrates on a white label basis and on a business-to-business basis. We are bullish on the entry into the CBD market due to the company’s existing position in California, Nevada and Oregon, and expect it to leverage its manufacturing and distribution capabilities to expand and pursue additional opportunities.
Pursuant to an agreement between StoneBridge Partners LLC and Manifest7. (MSVN) we have been hired for a period of 180 days beginning August 1, 2019 and ending February 1, 2020 to publicly disseminate information about (MSVN) including on the Website and other media including Facebook and Twitter. We are being paid $10,000 per month for or were paid “ZERO” shares of unrestricted or restricted common shares. We own zero shares of (MSVN), which we purchased in the open market. We may buy or sell additional shares of (MSVN) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.
Pursuant to an agreement between StoneBridge Partners LLC and 1933 Industries we have been hired for a period of 180 days beginning July 15, 2019 and ending January 15, 2020 to publicly disseminate information about (TGIF) including on the Website and other media including Facebook and Twitter. We are being paid $7,500 per month for a period of 6 months. We own zero shares of (TGIF), which we purchased in the open market. We plan to sell the “ZERO” shares of (TGIF) 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 (TGIF) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.