Canadian Licensed Producers (LPs) have been heavily impacted by the recent weakness in the cannabis sector and this is a trend that we continue to follow. Although the entire sector has been under pressure, Canadian LPs have been some of the hardest hit and we believe that a number of factors have caused this.
Going forward, we expect to see Canadian LPs come off their 2019 lows in the back half of the year and will continue to closely monitor this vertical of the cannabis industry. Today, we have highlighted 3 Canadian LPs that we have been watching and believe that these are opportunities that investors need to be aware of.
Aleafia Health Records Largest Order in Company History
Last week, Aleafia Health Inc. (ALEF.TO) (ALEAF) recorded a major milestone after its wholly owned subsidiary, Emblem Cannabis Corporation, reported to have completed the largest recreational cannabis order in the company’s history. The value of the order is expected to be more than $1 million and has been shipped to a Canadian provincial government to distribute online and to retail consumers.
This represented a major development for the Canadian cannabis producer and we expect to see more orders of this size announced later this year. Earlier this year, Aleafia Health acquired Emblem and we have been favorable on the growth prospects associated with the acquisition. Emblem is proving to be an accretive acquisition and we believe that the market does not fully appreciate this aspect of the story.
One of the reasons we are excited about Aleafia Health is related to the outdoor cultivation opportunity. We believe that the market is not assigning any value to this aspect of the business and are favorable on the way the company has advanced this operation. Currently, 13,000 cannabis plants are now growing in the company’s Port Perry outdoor grow facility, including in the newly licensed Zone 2 area.
Going forward, Aleafia Health will continue to be laser focused on increasing product supply which will allow for the global scaling of its cannabis health and wellness ecosystem. The management team has proven its ability to execute and we are bullish on the growth prospects associated with the current expansion. At current levels, Aleafia Health is trading at a significant discount when compared to its peers and we find this to be attractive.
CannTrust Comes Off its Lows
CannTrust Holdings Inc. (TRST.TO) (CTST) came off its July lows after announcing that the special committee has retained Greenhill & Co. Canada Ltd. to assist in a review of strategic alternatives. Following this announcement, rumors started to surface about a potential acquisition and we would not be surprised to see the Canadian LP acquired after the recent developments.
The Canadian LP has been under heavy pressure after it received a non-compliance letter from Health Canada. The company has been cultivating cannabis in rooms that were not approved by Health Canada and the management team was well aware of this activity. The company fired the CEO after these developments and we expect to see an acquisition in the near future.
CannTrust had significant leverage to the Canadian cannabis market and this development sent shockwaves throughout the cannabis industry. We believe that these issues have impacted other Canadian LPs and put additional pressure on the sector. Going forward, we expect these issues to be transitory and will continue to monitor this situation.
Emerald Health Hires a New CEO
During the last quarter, Emerald Health Therapeutics, Inc. (EMH.V) (EMHTF) has been under heavy pressure and has fallen more than 50%. Last week, the shares came off its lows after the company appointed Riaz Bandali as CEO. He has over 25 years of experience in life sciences, with expertise in global operations, strategy development, innovation cultivation, M&A, and investment management spanning contract clinical and research services, analytical instrumentation, lab services and venture capital.
Bandali previously served as President, Early Stage Development, inVentiv Health Clinical; SVP, Strategy and Business Development, AB Sciex and Molecular Devices; Vice President and General Manager, Global Early Stage Development at MDS Pharma Services; and Venture Partner and Vice President, MDS Capital. He holds a Master of Business Administration from McGill University, a Bachelor of Science from the University of British Columbia and has completed the Advanced Management Program at the Harvard Business School.
Emerald also reported to have appointed Thierry Schmidt as its Chief Commercial Officer. He will oversee all sales, marketing, and product development for Emerald. He is a marketing, brand/product management, sales, and business development expert who brings over twenty years of consumer goods experience, having worked at L’Oréal, Avon, and British American Tobacco. Schmidt will maintain his current position as President of Verdélite, Emerald’s cannabis cultivation, production and packaging facility in St. Eustache, Quebec.
These additions are significant and we will monitor how the new CEO advances the business from here. Emerald Health has a significant production footprint and we expect the company to report strong growth over the next year. The recent pullback has been significant and this is an opportunity that we will continue to watch.
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