Although the overall market was in rally mode, cannabis stocks were under pressure and we are monitoring this trend.
The Nasdaq rallied more than 1% and the exchange has been able to recapture all its losses from earlier in the month. We are bullish on the recent rally and are monitoring how it impacts Nasdaq-traded biotech cannabis stocks like GW Pharmaceuticals (GWPH) and Insys Therapeutics (INSY).
Today, we want to highlight three significant company announcements that cannabis investors need to be aware of.
Cronos to Commence Trading on the Nasdaq
Yesterday was a big day for the Canadian cannabis industry and we think the industry has reached an inflection point after Cronos Group (MJN.V) (PRMCF) was approved to commence trading on the Nasdaq Global Market exchange.
This is the biggest announcement for the Canadian cannabis industry since Constellation Brands (STZ: NYSE) acquired 9% of Canopy Growth (WEED.TO) (TWMJF) for $245 million (CAD). When this investment was announced the entire Canadian cannabis sector rallied so we were surprised to see the sector trade lower yesterday.
Cronos will benefit from a Nasdaq listing and we are even more bullish on the Canadian cannabis producer after this announcement. While Cronos will not immediately benefit from this listing, we expect this move to increase long term shareholder value by improving awareness, liquidity, and appeal to institutional investors.
Cronos just set the standard for Canadian cannabis producers and we expect several of its peers follow suit. We are bullish on this advancement and continue to see upside to current levels. Cronos has attractive international exposure and significant Canadian operations. This is a stock investors need to watch.
MedReleaf: Focused on Expanding via Acquisitions
Canadian licensed marijuana producers have been laser focused on increasing production capacity and expanding operations before the recreational market opens and we favorable on these growth initiatives.
Yesterday, leading licensed marijuana producer MedReleaf Corp. (LEAF.TO) (MEDFF) traded higher after announcing agreements to acquire 1 million sq. ft. of existing greenhouse infrastructure on a 69 acre property in Exeter, Ontario and 95 acres of adjacent land for $21.5 million in cash and 225,083 common shares.
This is a significant acquisition for the Canadian marijuana producer. After retrofitting the existing facility, MedReleaf will be able produce up to 105,000 kilograms annually with a first harvest anticipated by the end of 2018. When fully operational, the company’s fully funded capacity will be approx. 140,000 kilograms per year.
The facility will add large scale, low cost greenhouse production alongside MedReleaf’s two indoor production facilities. In addition, the adjacent 95 acres of undeveloped land could accommodate a greenhouse approximately 1.5 times larger than the existing facility, providing for future expansion opportunities.
After the market closed, MedReleaf received an upgrade from Canaccord Genuity and the broker-dealer raised its price target on the marijuana producer to $31 from $30. We are favorable on the recent developments and bullish on MedReleaf. We see significant upside to current levels and investors need to keep an eye on this one.
Invictus: An Execution and Valuation Story
Over the last year, Invictus MD Strategies (IMH.V) (IVITF) has significantly advanced its fundamental story and the Canadian marijuana producer is well positioned to capitalize on current growth initiatives. Invictus is comprised of three divisions (Acreage Pharms, AB Labs, and AB Ventures) and we are favorable on this structure as it is strategic in nature and can create synergies for the entire business.
Earlier this year, Invictus reported a milestone when AB Labs secured a strategic supply agreement with Canopy Growth (WEED.TO) (TWMJF) and sold 130 kilograms of premium cannabis, representing Invictus’ first revenue stream since inception.
Acreage Pharms has been very focused increasing production capacity and Phase 2 is nearly complete (can produce 4,400 kg of cannabis per year). Invictus expects Acreage Pharms to receive its sales license in the first quarter of 2018, which should be around the time that Phase 3 is complete. Acreage Pharms is focused on the cannabis oil opportunity and recently acquired extraction technologies and hired key professionals to launch the program. Acreage Pharms will apply for an oil license as soon as it receives its sales license from Health Canada.
Earlier this month, Invictus increased its ownership interest in AB Labs from 33.3% to 50%. The terms of the investment include a direct cash investment in AB Labs of $10 million, for the acquisition of adjacent land and building, and for the retrofitting costs of that existing building.
AB Venture’s development permit on 100 acres of land for the Phase 1 construction is fully funded, and its license application to Health Canada is currently in-progress. Once AB Ventures receives its ACMPR license, the entire property has the potential for cannabis cultivation,
Invictus has several potential catalysts for growth and we are favorable on this aspect of the story as well as the valuation. We consider Invictus to be an acquisition target due to the funded growth initiatives, the continued execution, and the stronger balance.