During the last year, the cannabis industry has recorded impressive advancements and the primary growth driver for the sector has been the opening of new markets in the United States (US) and abroad.
Although we are bullish on the changing landscape of the legal cannabis industry, companies need to take a strategic approach to growth and not try to bite off more than they can chew. Previously, we have seen leading Canadian Licensed Producers (LPs) like Canopy Growth (TSX: WEED) (Nasdaq: CGC) and Aurora Cannabis Inc. (TSX: ACB) (Nasdaq: ACB) closed facilities that cost more than $100 million to build because they expanded too quickly.
The mistakes made by leading cannabis operators like Canopy Growth and Aurora Cannabis have forced other operators to re-evaluate their respective growth strategy and we have seen several smaller-scale Canadian LPs close licensed facilities in Canada, Latin America and Africa, to lower expenses.
In the US, there have been far less facility closures by multi-state operators (MSOs) and we believe many of these companies have learned from the mistakes made in Canada. Today, we want to highlight 3 US companies that are focused on expanding and discuss how their respective growth strategy is working (or not working).
Audacious Brands: A Low-Cost Expansion Story to be Aware of
Audacious Brands (CSE: AUSA) (OTC: AUSAF) is a diversified US cannabis company that has been executing on a low-cost expansion strategy and has been flying under the radar. We believe the management team is working to maximize value for shareholders and are favorable on how the story has advanced so far this year.
From strategic investments in US MSOs to a 51% ownership interest in ALPS, Audacious owns a portfolio of valuable cannabis assets and we believe the business is trading for a discount when compared to its peers. At current levels, we find the risk-reward profile to be favorable and believe the business has significant growth catalysts.
Through ALPS, Audacious is able to form strategic relationships with leading cannabis operators and the asset is a core pillar of its low-cost expansion strategy. We are favorable on the type of agreements that Audacious is forming with cannabis operators and believe the structure of such agreements is a testament to the expertise the company has in regards to operating a state-of-the-art cannabis facility.
Earlier this month, Audacious reported plans to expand into Thailand via a strategic partnership with Golden Triangle Health (GTH), a subsidiary of NR Instant Produce PCL (NRF) which is a leading southeast Asian food manufacturer and distributor. We consider GTH to be a strategic partner and are bullish on the amount of value that can be created through the relationship.
In early 2021, hemp was legalized in Thailand and the government has granted a limited number of licenses. GTH received a license and has an early mover advantage on the market. Through the partnership, we believe that Audacious is well positioned to expand into additional international markets and we consider this to be an attractive aspect of the story.
Although we are excited about the moves that Audacious has made in strategic international markets, we are most excited about its leverage to the US. The management team has been executing on a multi-faceted growth strategy and we are favorable on the states that Audacious is levered to.
Going forward, we believe the business is well positioned to record strong growth as it starts to capitalize on the new markets it has entered into. We believe the relationships the company has the structure of the agreements has de-risked the overall opportunity and consider this to be an important aspect of the long-term story.
Body and Mind: An Low-Cost Execution Story with Catalysts for Growth
Last month, we visited Body and Mind’s (CSE: BAMM) (OTCQB: BMMJ) facility in Las Vegas and became increasingly excited about the opportunity after we met with the team and toured the facility. We classify the company as an MSO that is executing on a low-cost expansion story that is flying under the radar.
From a geographic strategy standpoint, we are favorable on the states that Body and Mind has targeted and believe these regions are attractive long-term growth markets. We are impressed with how the management team has expanded the operation and grew from being a west coast focused operator.
2021 has been a banner year for Body and Mind and we are favorable on how the story has advanced so far this year. We are bullish on the leverage the company has to both Michigan and Ohio and consider these states to be attractive limited license cannabis markets. When you combine these markets with the Las Vegas asset, we believe the company has an attractive recipe for growth.
Going forward, we believe that Body and Mind has substantial catalysts for growth and our readers should be aware of the opportunity. In future quarters, we expect the business to report strong revenue growth and improving profitability metrics. We find Body and Mind’s valuation to be attractive when compared to its peers and believe it has considerable upside potential.
At current levels, we find the valuation to be attractive and believe that Body and Mind has a favorable risk-reward profile. We are of the opinion that there is a significant disconnect with how the market is valuing Body and Mind and consider the business to be an attractive growth story.
Schwazze has Slowed Down its Pace of Acquisitions
Schwazze, (OTCQX: SHWZ) is a great example of a US cannabis company that tried to expand to quickly. In 2019, the company announced a series of acquisitions that probably would have cost between $150 to $200 million in cash and stock in aggregate. This amount does not included the amount of capital that would have been needed to integrate the assets and grow the business.
For this reason, we were not surprised to see the transactions fall apart and believe the failed acquisitions put pressure on the stock. Since the flurry of acquisitions was reported, there has been several changes to the management team and we continue to monitor how the new leadership team is advancing operations.
A few months ago, Schwazze announced an agreement to acquire the assets of Brow 2, which include a 37,000 square foot building (27,000 square feet of canopy) for indoor cultivation and equipment. This transaction is expected to create additional value for the previously announced acquisition of Star Buds, a cannabis retail store in Colorado.
Currently, there are 17 Star Buds branded dispensaries in Colorado and we will monitor how the team continues to focusing on capturing market share in the state. We believe the slower pace of acquisitions is better suited for the state of the current business and will monitor how the story evolves in 2022 and beyond.
If you are interested in learning more about companies that are expanding in the US and abroad, please send an email to email@example.com with the subject “US Cannabis Expansion Stories” to be added to our distribution list.
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Pursuant to an agreement between StoneBridge Partners LLC and Body and Mind Inc. we have been hired for a period of 90 days beginning October 1, 2021 to publicly disseminate information about (BAMM) including on the Website and other media including Facebook and Twitter. We are being paid $5,000 per month (BAMM) for or were paid “ZERO” shares of unrestricted or restricted common shares. We plan to sell the “ZERO” shares of (BAMM) 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 (BAMM) 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 Australis Capital Inc. we have been hired for a period of 180 days beginning September 13, 2021 and ending on March 13, 2022 to publicly disseminate information about (AUSA) including on the Website and other media including Facebook and Twitter. We are being paid $5,000 per month (AUSA) for or were paid “ZERO” shares of unrestricted or restricted common shares. We plan to sell the “ZERO” shares of (AUSA) 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 (AUSA) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.