The cannabis sector represents an attractive growth opportunity and during the last year, we have seen a significant increase in the number of investors that are focused on this multi-billion-dollar market.
The cannabis industry is in the early innings of a multi-decade growth cycle and this is a once in a lifetime type of opportunity for investors. During the last year, we have seen a significant increase in the number of companies that are levered to this burgeoning opportunity and this is a trend that we continue to monitor.
Although there has recently been a massive increase in the number of publicly traded cannabis companies, it is important for investors to conduct significant due diligence prior to investing and today, we want to highlight 5 cannabis companies that have been flying under the radar and have significant growth prospects.
MediPharm Labs: A Cannabis Oil Leader
The first company we want to highlight is MediPharm Labs (LABS: TSXV) (MLCPF: OTC), which is a leading Canadian cannabis oil producer that has significant catalysts for growth. There are a number of reasons as to why we are so favorable on MediPharm Labs and wanted to provide a quick break-down on this.
First, MediPharm Labs has been generating massive revenues following the issuance of a Sales License from Health Canada in November 2018 and this a trend that has been gaining considerable traction. The Canadian cannabis oil company has been executing flawlessly and has sourced cannabis flower/trim from 15 different LPs and has signed three supply contracts, five contract processing agreements (all of which are 3+ years in duration), and four white label sales contracts, valued at over $85 million.
Based on the agreements that it has signed and the partners that it has in place, MediPharm Labs in a league of its own and we believe that the market undervalues its growth prospects. If you look at the section below, you will see the companies that MediPharm can be compared to and will see that it has a more attractive valuation and growth profile:
- Radient Technologies (RTI.V) (RDDTF) has a market cap of approx. $250 million is an extraction company focused on patented Microwave Assisted Processing (MAP) technology. Earlier this year, the company received its Standard Cannabis Processing License and expects to have 90,000 kg of processing capacity by the end of the year. We think the company’s relationship with Aurora is a value driver but do not believe that the valuation should compete with MediPharm.
- Neptune Wellness Solutions (NEPT.TO) (NEPT) has a market cap that is north of $350 million and is a Quebec-based extractor. Earlier this year, the company received standard cannabis processing licensee and plans to sell extracts and finished products to businesses and consumers. The company expects to have 200,000 kg of processing capacity by March and has a strategic relationship with Tetra Bio-Pharma to co-develop formulations for wellness and pet markets.
- Valens GrowWorks Corp. (VGW.CN) (VGWCF) has a market cap of approx. $250 million and is a vertically integrated Canadian cannabis company focused on proprietary extraction methods as well as cannabinoid isolation and purification through distillation. The company leases and operates a 25,000 sq. ft extraction facility and has an extraction capacity of approx. 72,000 kg of cannabis per year.
Although we are favorable on these operators, we believe that MediPharm Labs is a more attractive growth opportunity and are favorable on the number of catalysts that it has for growth. The company is generating revenues that compete with leading Canadian LPs and we expect to see a shift in the way that the company is valued in the coming months. We believe that the market undervalues MediPharm Labs as well as its growth prospects and believe that this is an opportunity that has been flying under the radar.
Blueberries Medical: An Emerging Colombian Opportunity
During the last year, we witnessed a significant increase in the number of companies that are focused on the burgeoning cannabis opportunity in South America. One of the primary reasons for the increased interest is the economics associated with cultivating cannabis in South America and this is something that we are very excited about.
When compared to cultivating cannabis in Canada, the economics associated with cultivating cannabis in South America are much more attractive and we believe that investors need to be aware of this. In Canada, it cost approx. $1.50 to $2.50 to produce each gram of cannabis. In South America, it costs a couple cents to produce each gram of cannabis and this provides a significant advantage to South American operators.
We have been laser focused on the cannabis opportunity in Colombia and have been closely monitoring this emerging opportunity. Another reason why we are favorable on this market is due to the lack of competition and we are favorable on the companies that have an early move advantage.
PharmaCielo (PCLO.V) (PHCEF) and Khiron Life Sciences (KHRN.V) (KHRNF) are the two best known cannabis companies in Colombia and there opportunities have been generating serious traction. PharmaCielo is valued at more than $1 billion while Khiron is valued at north of $330 million and we find this to be significant.
Earlier this year, we highlighted Blueberries Medical Corp. (BBM.CN) (BBRRF) as a Colombian cannabis company that has been flying under the radar and we hope that you took note of this. During the last month, the shares have been trending higher as the company has been executing on its business plan and this is an opportunity that is barely in the first inning of a major growth cycle.
We believe that the market under-appreciates Blueberries Medical and believe that this represents a significant opportunity for investors. If you look back at the performance of Canadian cannabis producers that were early movers, you will see that there is a lot to be excited about.
The international cannabis opportunity is significant, and Blueberries Cannabis has been laser focused on this. In order to develop an international distribution network, the company is making progress with some potential partners located in countries where there are legal
frameworks for medicinal cannabis already existing. When it comes to strategic relationships, the company has done a great job of executing and is well positioned to capitalize on the European opportunity. Blueberries Cannabis has secured EUROMEDICAL CANAPA and MADRE TERRA are its strategic partners for distribution and sale of cannabis products in Europe.
When it comes to distribution, Blueberries Cannabis is well positioned in the Colombian market and we are favorable on this. The company entered into a letter of intent with El Manantial, an alternative medicine clinic with approx. 7,000 patients and we consider this to be a strategic relationship. The number of patients is expected to increase to more than 50,000 over a 36-month period as the company rolls out to four new departments.
Blueberries Cannabis is focused on expanding its product line and has developed its first finished product (prototype) manufactured with imported cannabis oil extract. In 2019, the company expects to launch new products and we are bullish on this. We believe that Blueberries Medical has an early mover advantage on the South America cannabis market and are favorable on the growth prospects associated with this opportunity.
Stem Holdings is an MSO that is Flying Under the Radar for Now
The rise of United States multi-state-operators (MSOs) was a major theme of 2018 and this theme has continued to gain traction so far this year. This is a part of the cannabis industry that we consider to be very exciting and is comprised of the United States cannabis businesses.
The United States MSO opportunity is significant and several of these companies have multi-billion-dollar valuations. Although cannabis is illegal at the federal level in the United States, the industry is regulated at the state level and we have seen a significant increase in the number of states with an active cannabis market.
When it comes to catalysts for MSOs, nothing is more significant than the opening of new markets or regulatory reform. We believe that this is one of the most exciting verticals of the cannabis industry and believe that it has significant upside from current levels. During the last year, we have been working to identify United States MSOs that are flying under the radar and have attractive valuations.
Stem Holdings (STEM.CN) (STMH) is a United States MSO that has been flying under the radar and is positioned to capitalize on the cannabis markets in Oregon, Nevada, and Oklahoma. The company is in the middle of a major expansion and is focused on further expanding its reach and is looking at the opportunity in Massachusetts, Florida, and California.
The company is well capitalized, and this is an important aspect of the story when it comes to funding its growth plans. We believe that Stem Holdings represents an attractive growth opportunity due to the following reasons:
- Stem Holdings has been successful in Oregon and has been focused on replicating its success in new cannabis markets
- The company is in the middle of a major expansion and has significant catalysts for growth
- Stem Holdings is targeting burgeoning cannabis markets and we are favorable on the growth prospects associated with these opportunities
- When compared to its peers, the company has a very attractive valuation and has been flying under the radar
- Stem Holdings has made significant additions to its management team and is led by executives who have proven track records of success
Although Stem Holdings has been executing flawlessly, the shares have been coming off its recent highs and we are monitoring this emerging opportunity. During the last year, the company has significantly advanced its fundamental story and is well-positioned to capitalize on burgeoning cannabis markets.
Stem Holdings has been very active, and we are bullish on the leverage to the Las Vegas cannabis market. This is a market that has been experiencing rapid growth and one that we are excited about. The last month has been very busy for the company and this is an opportunity that investors need to monitor.
Emerald Health: An Undervalued Canadian LP
One of the major themes of the cannabis industry has been centered around the Canadian Licensed Producer (LP). Currently, there are more than 100 Canadian LPs and most of them are in the middle of major expansion. When it comes down to ranking Canadian LPs, there are a number of factors we look into. Some of the most important factors include production capacity, cash on hand, leverage to international markets, distribution agreements for Canada’s medical and recreational cannabis markets, and the management team.
When we analyze Canadian LPs in search of undervalued opportunities, we look into these five factors as well as several more. Emerald Health Therapeutics (EMH.V) (EMHTF) represents a Canadian LP that is well positioned for growth and is flying under the radar. The company is in the middle of a major expansion and has received approval from Health Canada to cultivate cannabis in a facility with more than 1 million sq. ft. of designated production space.
Although Emerald Health Therapeutics has significant growth prospects, the shares are trading at a significant discount to its peers and this is something that investors should be watching. The Canadian cannabis producer has been nothing short of an execution story and has significantly advanced its fundamental story. Through strategic relationships, Emerald Health has a visible growth strategy, and this is an important aspect of the story.
Emerald Health Therapeutics has recently made some significant changes to its management team and we think that this is an important area to highlight. The market did not respond favorably to this change and we believe that this has created a great opportunity for investors. The company has significant growth prospects and we believe that the market will become extremely favorable on this opportunity once it starts operating at full capacity.
The international opportunity represents a significant opportunity for Emerald Health, and we are bullish on the growth prospects associated with this. The company has been flying under the radar and we consider Emerald Health to be an acquisition target. There are a number of reasons as to why we are favorable on this Canadian cannabis producer and recommend keeping this opportunity on your radar.