One of the most exciting trends to be following in Canada relates to the outdoor cannabis cultivation opportunity and this trend has been generating considerable traction over the last few weeks.
When it comes to the outdoor cannabis cultivation opportunity, the time frame for execution is much shorter and the growing season typically starts in June and ends in October. This allows for licensed producers to have one harvest and we expect to see licensed producers have much larger harvests in 2020.
The name of the game for the companies that are attempting to execute on the outdoor cultivation opportunity is execution and we will be monitoring the operators that are focused on this. Today, we wanted to highlight three Canadian Licensed Producers (LPs) that have announced plans to capitalize on the outdoor cannabis cultivation opportunity and believe that this is an area to be focused on.
Aleafia Health Granted Outdoor License
When it comes to Canadian companies that are focused on the low-cost outdoor cannabis opportunity, Aleafia Health Inc. (ALEF.TO) (ALEAF) is a business that needs to be highlighted. Last week, the Canadian LP was granted approval by Health Canada for an outdoor cannabis cultivation facility and this did not come as a surprise to the management team.
Aleafia Health has been preparing for this approval and already has dedicated cultivation rooms at its Paris facility for this operation. The company has been propagating starter clones with strains that have been genetically modified to withstand intense weather condition and are well-suited for an outdoor operation. Due to decision to move forward with this operation prior to receiving final approval, approx. 13,000 of these starter clones are already at the facility and are favorable on the growth prospects associated with this opportunity.
The license that was issued to Aleafia Health allows for the cultivation of cannabis in Zone 1 of the facility which represents approx. 292,000 sq. ft. of space. Next month, Aleafia Health expects to receive a Health Canada license amendment for the remainder of the total 1.1 million sq. ft. facility, and this would be a significant development. In order to be well positioned once the amendment is granted, some of the 13,000 starter clones will grow in pots in Zone 1 and will be moved to the expanded area upon the receipt of the license amendment.
One of the reasons we are excited about this opportunity for Aleafia Health is related for the plans on the cannabis oil side of the business. The company plans to transport the cannabis grown at the outdoor facility to its Paris processing facility for the production of high-margin, value-added cannabis health and wellness products. This represents a massive opportunity and is one of the reasons we were so excited about the acquisition of Emblem Inc.
For the first time, Aleafia Health will be able to leverage Emblem’s extraction and product innovation to sell high-margin medical cannabis directly to its patient base and we are bullish on the amount of value that can be created between the two businesses. The cannabis oil opportunity represents a massive market for Aleafia Health and we expect the cannabis from the outdoor production operation to play a key role in the company’s ability to execute on this vertical of the industry.
Aleafia Health has several major potential catalysts for growth and we are bullish on this aspect of the story. Although the company has been able to significantly advance its fundamental story, the shares have fallen more than 40% since March and this is an opportunity to be watching.
WeedMD: A Canadian Leader that is Trading at a Discount
WeedMD Inc. (WMD.V) (WDDMF) is a leading Canadian cannabis producer that has been laser focused on the outdoor cultivation and the cannabis concentrate opportunity and we find this to be significant. These are two major initiatives for the Canadian cannabis producer, and we believe that this is opportunity is flying under the radar.
When compared to its peers, the Canadian LP is trading at a massive discount and we believe that the market is not pricing in the value added by the addition of its 27-Acre outdoor grow. We think that it is ridiculous to not associate any value with the company’s outdoor operation and expect this to be a major value driver for the entire business. Full video coverage of the outdoor grow can be seen here.
Earlier this month, WeedMD reported a major milestone and secured Health Canada approval for 27 acres of low-cost, outdoor cultivation on its Strathroy property. This is a significant approval and we believe that the market is missing out on something big and are bullish on the growth prospects associated with this approval. This week, the Canadian cannabis producer will commence planting more than 20,000 clones with plans to harvest in fall 2019. This project will end up increasing the company’s total potential production output by an additional 27,000 kgs and we find this to be significant.
Another reason we are excited about WeedMD is due to the increased focus on the cannabis concentrates opportunity. The Canadian cannabis producer recently announced that plans to transition its Aylmer facility into a cannabis extraction and processing hub. When you combine this opportunity with the large amount of low-cost premium cannabis that the outdoor harvest will generate, the company is well positioned to process and market significant quantities of cannabis extracts and concentrates.
WeedMD expects to start selling cannabis concentrates by the fourth quarter of 2019 and we are bullish on this opportunity. With a combined indoor and outdoor production footprint of over 5.2 million sq. ft. and a projected total potential annual output of 150,000 kgs of cannabis by 2020, WeedMD is well positioned to become one of Canada’s largest cannabis producers and we believe that the market significantly underappreciates this.
When looking at the recent developments, we believe that one of the biggest potential catalysts for WeedMD will be the development and sale of high-margin derivative products. We are favorable on the decision to convert the Aylmer facility into a cannabis concentrate producer and the company plans to target domestic and international opportunities when it comes to this side of the business. We believe that the market has barely assigned any value to this transition and are favorable on the growth prospects associated with this opportunity.
As of 6/17 the outdoor grow has full completed planting and the update can be found HERE.
48North: An Outdoor Cannabis Producer to be Watching
Another Canadian LP that is focused on the outdoor opportunity is 48North Cannabis (NRTH.V) (NCNNF) and we continue to monitor this business. Last week, the Canadian LP announced a major development as it relates to the outdoor opportunity and signed a supply agreement with the Ontario Cannabis Store (OCS), Ontario’s sole wholesaler and online retailer for recreational cannabis.
Under the supply agreement, 48North will supply the OCS with 1,200 kilograms of dried cannabis from its Good Farm outdoor cultivation operation and we will monitor how the team is able to execute on this. 48North’s Good Farm is expected to produce an estimated 40,000 kilograms of organic, sun-grown cannabis from more than 3.7 million sq. ft. of outdoor cultivation space. At Good Farm, 48North expects to harvest cannabis at what is expected to be one of the lowest cost per gram in the country.
At these production levels, 48North will be generating massive revenues from this outdoor operation and we will monitor what the team is able to produce during the 2019 season. This supply agreement marks the company’s third outdoor supply agreement with a provincial wholesaler for outdoor-grown cannabis and we find this to be significant. Previously, 48North signed agreements with the Société québécoise du cannabis (SQDC) for 1,200 kilograms of dried cannabis, and Alberta Gaming, Liquor & Cannabis (AGLC) for 2,460 kilograms of dried cannabis. So far this year, 48North has committed nearly 5,000 kilograms of dried cannabis from its Good Farm to the Canadian recreational market and we are favorable on the growth prospects associated with this.
As we previously stated, the name of the game for these outdoor cannabis cultivators is execution and we will monitor how 48North is able to advance its operation from here. We believe that 48North has a significant opportunity to become a leading outdoor producer and are favorable on the relationships that are in place. From Canopy Growth to Tokyo Smoke, the company could not have selected better strategic partners and we will continue to monitor this opportunity.
Pursuant to an agreement between StoneBridge Partners LLC and WeedMD Inc. we have been hired for a period of 180 days beginning April 22, 2019 and ending October 22, 2019 to publicly disseminate information about (WMD) including on the Website and other media including Facebook and Twitter. We are being paid $6,000 per month (WMD) for or were paid “ZERO” shares of unrestricted or restricted common shares. We own zero (0) shares of (WMD), which we purchased in the open market. We plan to sell the “ZERO” shares of (WMD) 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 (WMD) 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 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.