Although the United States cannabis market represents a significant opportunity, we have remained favorable on Canada and continue to monitor this market.
During the last two months, the Canadian cannabis industry has been trending lower and this is something we are watching. We are not surprised by this decline and have seen similar price movements during the same period dating back to 2015.
We have been closely monitoring this trend and analyzing the recent price movements to better understand which opportunities are poised to move higher. Today, we want to highlight 3 Canadian Licensed Producers (LPs) that have significant catalysts for growth and are trading at a massive discount when compared to their peers.
WeedMD: The Most Undervalued Canadian Cannabis Producer
Last month, we visited WeedMD’s (WMD: TSX Venture) (WDDMF: OTC) Strathroy facility and were very impressed with the operation. We have toured facilities at several Canadian LP’s over the years and have not found one that is as advanced and as well managed as WeedMD’s.
Along with having a state-of-the-art facility that is well-managed, the Canadian cannabis producer has been able to produce some of the most highly sought-after cannabis on the market. If you look at the way consumers purchase cannabis from the Ontario Cannabis Store (OCS) or in retail locations in Ontario, you will see that WeedMD’s products are typically the first to sell-out and this is not due to a lack of supply.
Consumers across Canada are passionate about WeedMD’s product and this is a testament to the leadership team that is in place. When it comes to investing in a cannabis company, you are really investing in the management team and we are favorable on this aspect of the WeedMD story. The company is led by a management team that is focused on creating value for shareholders and we believe that WeedMD is one of the most undervalued opportunities.
With a market capitalization of approx. $200 million, WeedMD has an attractive valuation for such significant upside potential. When compared to its peers, the Canadian cannabis producer is trading at a significant discount (1x 2020 Revenue) and has major catalysts for growth including outdoor and a new recreational brand. We are bullish on WeedMD and consider it to be one of the most under-appreciated opportunities.
Over the next year, we expect to see WeedMD report several significant developments that will lead to the company being re-rated by the street. This is an opportunity that investors want to take a look at before the market wakes up and recognizes that this is a company that has significant room to run.
A key reason we are bullish on WeedMD is due to its existing and expanding cannabis operations. The company currently operates out of two licensed facilities in Ontario that have a combined footprint of 600,000 sq. ft of indoor grow with all of it producing by end of 2019 (50,000kg of indoor flower production). Both facilities are located on properties that offer significant room to expand and we are favorable on the growth prospects associated with the expansion opportunities.
Currently, 10 grow rooms (total of 110,000 sq. ft.) have been licensed by Health Canada and another 10 are expected to be operational in June. Later this year, an additional 300,000 sq. ft. of greenhouse space as well as 27 acres of outdoor production are expected to come online by the end of 2019, which would be a major production ramp up for the company. Once WeedMD is operating at full capacity, it will be generating significant revenues and will have done so on one of the smallest budgets and shortest timelines when compared to other Canadian LPs.
With consolidation being a major theme of the cannabis industry so far this year, we believe that WeedMD could be a beneficiary of this. When compared to peers of a similar size, the company has more significant growth prospects and tends to be much cheaper on a valuation basis. This is an opportunity that we are bullish on and recommend keeping an eye on this one.
Last week, WeedMD released fourth quarter and year-end financial results for the period that ended on December 31, 2018, and these numbers showed impressive growth on a year-over-year basis. The company is now transitioning its cultivation to Strathroy putting temporary pressure on margins, offering a unique buying opportunity. We expect to see the company continue to increase market share in Canada as it increases production capacity and we are bullish on its growth prospects on a go-forward basis.
Aleafia Health: A Growth Story to be Watching
Aleafia Health (ALEF.TO) (ALEAF) represents a Canadian LP that has benefited from the consolidation in the cannabis sector and has been flying under the radar. In early March, the company completed the acquisition of Emblem and we are favorable on the growth prospects of the combined company.
Following the closing of this acquisition, Aleafia Health has been under considerable pressure and this is a trend that we have been watching. We believe that the recent pullback is overdone and are favorable on the risk-reward scenario associated with the Canadian cannabis producer. Over the next year, we expect the company to significantly advance its fundamental story and recognize massive synergies associated with the Emblem acquisition.
Last week, Aleafia Health reported financial results for the period that ended on December 31st and recorded strong growth on a comparative basis. The company is well positioned to execute on its previously announced initiatives, and we are favorable on the management team’s ability to create value for shareholders. Going forward, we expect to see Aleafia Health’s revenues ramp higher as it starts to recognize significant value that is associated with its recent acquisitions and we expect the market to respond favorably to this.
One of the reasons we are excited about Aleafia Health is due to the number of avenues that it has for growth. Last month, the company launched FoliEdge Academy, a first-of-its-kind cloud-based cannabis education and certification platform that features proprietary, interactive courses that have been customized for large organizations, unions, insurance and healthcare providers, and educational institutions.
Over the next few years, we expect to see a significant increase in the need for education and training services for the cannabis industry. FoliEdge Academy course content will represent an important part of Aleafia Health’s scalable, cannabis health and wellness ecosystem, and can integrate with the company’s medical cannabis clinic network that has seen more than 60,000 patients to date. The introduction of this platform cements Aleafia Health’s horizontal diversification strategy and we are favorable on the growth prospects associated with this.
Following the completion of the Emblem acquisition, Aleafia Health plans to capitalize on high-growth opportunities in Canada and abroad across four verticals: Cannabis Production, Health and Wellness, Cannabis Education and the Consumer Experience. We are monitoring how the management team is able to execute on these four verticals and believe that this is an opportunity to be watching.
Emerald Health is Flying Under the Radar
Last month, we visited Emerald Health Therapeutics (EMH.V) (EMHTF) cultivation facility outside of Vancouver. This facility is related to the Pure Sanfarms joint venture and we were impressed with the size of this operation. This is one of the largest cannabis production facilities in Canada with more than 1 million sq. ft. of production space approved by Health Canada.
When compared to peers of a similar size, Emerald Health Therapeutics represents an undervalued opportunity. The company’s expansion will result in it reporting significantly strong quarterly financial results and this is something that we are excited about. Over the next year, we expect the company’s fundamental story to significantly improve and this should be a catalyst for the shares.
One of the reasons we are excited about the Emerald Health Therapeutics opportunity is due to the strategic partners that it has secured. We believe that this is one of the most attractive aspects of the story and expect these relationships to help facilitate growth over the next year. Another exciting aspect of this story pertains to its focus on the smokeless product market. Over the next year, we expect this side of the business to be a major value driver and we will monitor how the team executes on this.
Although Emerald Health Therapeutics has significantly advanced its fundamental story over the last year, the shares have come well off its highs and are trading at an attractive valuation when compared to its peers. The Canadian cannabis producer has significant potential catalysts for growth and this is an opportunity to be watching.
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.