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3 Cannabis Oil Leaders Investors Need To Know

Feb 5, 2019 • 11:22 AM GMT+0000
cannabis extraction.png
5 MIN READ  •  By Michael Berger
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During the last year, demand for cannabis oil has significantly increased and this is a trend that we expect to continue. A main factor that contributed to this increase is the increased awareness of the health benefits that are associated with cannabidiol (CBD), one of the most utilized compounds in the cannabis plant.

We have been favorable on the cannabis oil opportunity and believe that this is an area where investors need to be focused. One of the reasons why we are so favorable on this opportunity is due to the better economics associated with CBD, especially when compared to cannabis flower. Another reason why we are favorable on cannabis oil is due to the decreasing number of people smoking cigarettes.

Today, we want to issue an update on the cannabis oil opportunity and highlighted 3 companies that are laser focused on this burgeoning market.

MediPharm Labs: Nothing Short of an Execution Story

When it comes to leading Canadian cannabis oil companies, MediPharm Labs (TSXV: LABS) (OTCQB: MLCPF) is a company that comes to mind. If you compare the leading Canadian cannabis producers to MediPharm Labs from a revenue standpoint, you will see why we are so excited. During the month following the granting of a sales license from Health Canada, MediPharm Labs generated $10 million in revenue and this is a major milestone.

MediPharm Labs is producing pharmaceutical-grade cannabis oil and concentrates at industrial scale, and is operating out of a fully functional 70,000 sq. ft. facility. The facility can currently process 150,000 kilograms of dry cannabis flower or trim per year, the largest extraction footprint in Canada, and the company is the middle of a major expansion that is expected to increase processing capacity to 250,000 kilograms of dry cannabis per year by the end of the second quarter of 2019 (that’s more processing capacity than there was cannabis grown in all of Canada in 2018 and 2019 to date).

During the last few months, MediPharm has been executing flawlessly and has a client roster that includes several leading Canadian cannabis producers. The company has signed wholesale purchase agreements with thirteen LPs to secure its supply of dry cannabis to fuel its white label wholesale extraction business and has secured multi-year processing agreements for fee-for-service tolling with six LPs while negotiating with several others.

From a valuation standpoint, this makes MediPharm a very attractive opportunity and we are bullish on the growth prospects going forward. While these leading Canadian cannabis producers trade at multi-billion-dollar valuations, MediPharm’s market capitalization is less than $250 million and we think that the market significantly underappreciates this opportunity. 

Halo Labs: An Emerging United States Opportunity

Last month, we highlighted Halo Labs (NEO:HALO) (AGEFF) as an emerging cannabis oil leader in the United States and this is an opportunity we have been closely monitoring. The company is in the middle of a major expansion and recently started to capitalize on the cannabis oil opportunity in California and Nevada.

California is the world’s largest cannabis market and we are favorable on the leverage to this burgeoning opportunity. In October, Halo Labs announced a multi-million dollar cannabis oil distribution agreement with Falcon International Corp. and we are bullish on the growth prospects associated with this relationship. Under the agreement, Halo will supply at least 50,000 grams and up to 70,000 grams of bulk cannabis distillate at $7.50 per gram (approx. $1.6 million to $2.2 million in revenue on a monthly basis) and we will monitor how the companies execute on this.

Operations in Nevada have been rapidly progressing and we expect this market to be a significant growth driver for the company. In late October, Halo Labs issued an update on its Nevada operations and we were impressed with the initial results. The company has been laser focused on execution and its Nevada manufacturing and sales operations have steadily ramped higher, with the company having enough inventory to ramp sales up to $1 million per month.

Halo Labs was founded in 2016 and was initially focused on the Oregon cannabis market. The company has produced over 3 million grams of oils and concentrates in Oregon since inception and we are favorable on the leverage to the California and Nevada markets. Over the next year, we expect fundamentals to significantly improve and believe that the market underappreciates this cannabis oil opportunity. 

Radient Technologies: An Opportunity Worth Watching

Yesterday, Radient Technologies (RTI.V) (RDDTF) surged higher after announcing that it has received its Standard Processing License from Health Canada. This was a significant development and the market responded very favorably with the shares rallying more than 30% on very heavy volume.

One of the reasons why the market has been so favorable on Radient is due to its relationship with Aurora Cannabis (ACB.TO) (ACB). In 2016, Aurora identified Radient’s proprietary extraction technology as potentially disruptive due to its ability to achieve much higher throughputs (when compared to existing benchmark technologies) as well as its efficiency and its ability to preserve the full spectrum of cannabinoids and terpenes.

Since investing in Radient, Aurora has expanded into the hemp sector with its majority ownership of Hempco Food and Fiber (HEMP.V) (HMPPF) and the acquisition of AgroPro, Europe’s largest producer of organic hemp products, providing low-cost access to high-quality raw material for the extraction of CBD. The industrial-scale extraction of CBD will play a key role in the roll-out of Aurora’s derivative products strategy, including the development and production of high-margin products for the wellness market.

Many people consider Radient to be an acquisition target and we continue to closely monitor its relationship with Aurora Cannabis. The recent price movements have been significant, and this is an opportunity that we will be keeping an eye on.

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Authored By

Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners, LLC and Founder of Technical420.com. Prior to entering the cannabis industry, Michael was an Equity Research Analyst at Raymond James Financial covering the Energy Sector. Michael has been featured in publications such as The Street, Bloomberg, US Money News, and hosts various cannabis events across North America.

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