One of the most exciting trends in the cannabis industry is the increasing demand for cannabis concentrates. We have been bullish on this vertical of the cannabis industry and believe that this is an area where investors need to be focused.
Earlier this month, Select was acquired for approx. $1 billion and this was the largest acquisition of a cannabis concentrate company to date. Over the next year, we expect to see more acquisitions like this and have been focused on the companies that are capitalizing on the cannabis concentrate market.
Today, we have highlighted 3 companies that have been capitalizing on the cannabis concentrate opportunity and believe that these are companies that investors should be watching.
Halo Labs: An Execution Story to be Watching
Halo Labs (HALO: NEO) (AGEEF) is the perfect example of a company that has been benefiting from the increasing demand for cannabis concentrates and we have been monitoring how it continues to execute on the United States market.
Earlier this month, Halo Labs released first quarter financial and operational results that showed massive growth and these numbers were very impressive. During the quarter, the company generated more than $8.7 million in revenue which represents a more than 300% increase over the same period last year. Halo Labs has significant growth prospects and we expect to see the company report strong growth on a quarter-over-quarter basis.
One of the primary reasons for Halo Labs’ massive revenue growth is due to it benefiting from having several revenue streams. These streams are associated with different state markets and we expect the company to report even more significant growth over the coming months. Halo Labs has significant potential catalysts for growth and we are favorable on the focus on the cannabidiol (CBD) opportunity.
Last month, Halo Labs announced a binding letter of intent to secure a purpose built hemp processing facility in Southern Oregon to expand its production capabilities into manufacturing CBD isolate and distillate. The company expects to commence production in the third quarter of 2019 and we will monitor how the team is able to execute on this.
Halo Labs’ recent entrance into the California cannabis market has been a significant value driver for the overall business and this is something we are excited about. The company is focused on expanding its position in this market and this represents a massive opportunity. One of the biggest potential catalysts for Halo Labs will be the completion of its 2nd Cathedral City location, which will significantly increase overall capacity and add the ability to deliver directly to dispensaries.
One of the reasons why we are favorable on Halo Labs is due to the focus on selling higher margin products in burgeoning cannabis markets like California and Nevada. Over the coming months, the company expects to release updates on new distributor agreements to increase distribution of bulk and branded products further fueling its success in the California market. Halo Labs has already signed bulk supply agreements with Falcon and Ikanik Farms, and we are bullish on this opportunity.
When looking at Halo Labs, we see a company that has been nothing short of an execution story and has significant potential catalysts for growth. Since inception, Halo Labs has proven its ability to be successful is competitive cannabis markets and we find this to be important. Over the next year, we expect to see the company build on its existing position in major cannabis market while expanding into new markets. This is an opportunity to be watching.
MediPharm Labs: An Acquisition Target to be Watching
2019 has been a banner year for MediPharm Labs Corp. (LABS.V) (MEDIF) and we are impressed with this operation. Following the issuance of a Sales License in November 2018, the company has been nothing short of an execution story and has been able to significantly advance its fundamental story.
Earlier this month, MediPharm reported a massive development and entered into a multi-year supply agreement with Cronos Group Inc. (CRON.TO) (CRON). Under the agreement, MediPharm Labs will supply Cronos Group with approximately $30 million of high-quality private label cannabis concentrate over an 18-month period, and, subject to certain renewal and purchase options, potentially up to $60 million over a 24-month period. Cronos also selected MediPharm Labs’ extraction facility as a preferred partner to fulfill certain of its processing needs, under a separate tolling arrangement.
Prior to announcing the supply agreement with Cronos Group, MediPharm Labs had already sourced cannabis flower/trim from more than 15 different Canadian cannabis producers and signed five contracts for the sale of its cannabis oil that are valued at over $85 million. This puts the Canadian cannabis oil company in a league of its own and we are bullish on the growth prospects on a go-forward basis.
When we are looking at companies in the cannabis industry, we look for companies that have clear and defined avenues for growth. MediPharm Labs is a company with several significant growth drivers which we are highly bullish on. One of the reasons why we are favorable on MediPharm Labs is the potential catalysts for growth. These catalysts include:
- Incremental processing contracts: MediPharm Labs recently announced four wholesale concentrate contracts with large LPs and we expect to see more agreements like this. We believe that additional contracts will continue to de-risk the story and should be a catalyst
- Increasing capacity: The company currently has five extraction lines, with 150,000 kg of dried flower processing capacity. In the back half of 2019, the company plans to commission two additional lines which will increase capacity and support growth.
- Offering new services: Prior to Canada legalizing the sale of concentrates and edibles in the fourth quarter of 2019, we expect to see MediPharm Labs expand its product offering to meet the evolving needs of its clients.
- Reporting better than expected numbers: Following the issuance of a Sales License, MediPharm Labs has been executing flawlessly and continues to sign major agreements. The company has been seeing an increase in the number of companies providing product for processing and we expect the company to continue to report strong numbers. The current valuation is attractive based on these above-average growth prospects and we are monitoring how the team continues to execute.
- Receipt of an Australian license: MediPharm Labs has started to build an extraction facility in Australia to gain an early mover advantage in the Australian and Pacific/Asian markets. The facility is expected to be completed and operational in the back half of 2019, pending the granting of the necessary licenses. MediPharm Labs recently announced a significant agreement with AusCann and we are bullish on the growth potential associated with this emerging cannabis market.
- The issuance of the EU GMP certification: We believe that the issuance of the EU GMP certification will be one of the biggest potential catalyst for MediPharm and will allow it to capitalize on the EU market (twice the size of the US from a population standpoint). The export market opportunity for MediPharm Labs is massive and this represents a major growth opportunity.
MediPharm Labs has secured supply agreements with most of the leading Canadian cannabis producers and we find this to be significant. We believe that the company’s relationship with Canopy Growth is important to be aware of and would not be surprised if one of these leading Canadian cannabis producers announced an agreement to acquire MediPharm later this year.
Ionic Brands: A Burgeoning Cannabis Concentrate Opportunity
Ionic Brands (IONC: CNX) (ZRRRF: OTC) is a company that has been able to penetrate some of the most competitive cannabis markets by accumulating a portfolio of leading cannabis brands and has been highly focused on the cannabis concentrate opportunity.
Last month, we highlighted Ionic Brands and have been impressed with what the team has been able to accomplish so far. The company has been focused on consolidating leading cannabis brands and acquiring businesses that are generating significant cash flow. Through a series of strategic acquisitions, Ionic Brands has been able to significant enhance its fundamental story and we are bullish on its growth prospects.
One of the reasons we are excited about Ionic Brands is due to the potential growth associated with its current expansion. In 2019, the company has expanded into California and Oregon, which represent massive cannabis markets and we are favorable on the growth prospects associated with these markets.
When it comes to California, we are very excited about the distribution agreement that it recently signed with Origin House (OH.CN) to enter 500 retail stores. In California, vaporizers dominated the cannabis concentrate market and represents 14% of the entire cannabis market. We believe that this relationship will prove to be a major value driver for Ionic Brands and will monitor how the team is able to execute on this.
In April, Ionic Brands reported a significant development and signed a letter of intent to acquire licensed cannabis volatile extraction and manufacturing assets from Kavry Management LLC. Under the agreement to Karvy, Ionic Brands will immediately acquire a 3,700 sq. ft., building which includes a fully operational extraction facility. The company will also acquire the existing 48,000 sq. ft. facility, all of the inventory and equipment of the current licensed operation in Adelanto, California. This acquisition significantly enhances the company’s presence in California as well as its relationship with Origin House.
The acquisition represents a massive opportunity as it fits Ionic Brands’ plan to be vertically integrated. The facility provides the company with a great foundation to produce premium cannabis concentrates to sell the world’s largest cannabis market and we find this to be significant. One of the primary reasons we are excited about the California market is due to the size of it. There is significant demand for cannabis concentrates and Ionic Brands will benefit from this.
Another reason we are excited about Ionic Brands is due to the leverage to the Nevada market. Through an agreement to acquire Vegas Valley Growers (VVG), a revenue-generating vertically integrated operation that has the necessary licenses (production, manufacturing, and distribution), Ionic Brands is well positioned to capitalize on the Las Vegas cannabis market. The acquisition includes the successful product consumer vape retail brands Vegas M Stick and Reno M Stick that are sold in dispensaries throughout Las Vegas and other parts of Nevada.
Currently, VVG operates a 1,700 sq. ft. production facility and is in the middle of a major expansion. The facility is located on a 3.42 acre property and VVG is constructing a 70,000 sq. ft. manufacturing facility that is expected to be completed in June. We are bullish on the growth prospects that are associated with this expansion and once it is complete, VVG will be a major player in the Las Vegas market.
If we were to compare Ionic Brands to another publicly traded cannabis company, we would select SLANG WorldWide (SLNG: CSX) which was an early mover when it comes to acquiring cannabis concentrate brands and has a market capitalization that is greater than $450 million (CAD). This valuation bodes well for Ionic Brands which has a market capitalization of $47 million (CAD), and we are of the opinion that this opportunity has been flying under the radar.
Pursuant to an agreement between StoneBridge Partners LLC and Ionic Brands Inc. we have been hired for a period of 90 days beginning April 10, 2019 and ending July 10, 2019 to publicly disseminate information about (IONC) including on the Website and other media including Facebook and Twitter. We are being paid $6,666 per month (IONC) for or were paid “ZERO” shares of unrestricted or restricted common shares. We own zero (0) shares of (IONC), which we purchased in the open market. We plan to sell the “ZERO” shares of (IONC) 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 (IONC) 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 Halo Labs we have been hired for a period of 180 days beginning November 4, 2018 and ending June 4, 2019 to publicly disseminate information about (HALO) including on the Website and other media including Facebook and Twitter. We are being paid $6,750 per month for a period of 6 months. We own zero shares of (HALO), which we purchased in the open market. We plan to sell the “ZERO” shares of (HALO) 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 (HALO) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.