Last week, the California Senate approved legislation to create state-chartered cannabis banks to help the industry navigate restrictions in regards to access to banking services. Under the state legislation, private banks or credit unions can apply for a limited-purpose state charter so they can provide depository services to licensed cannabis businesses.
This represents a major step in the right direction for the United States cannabis industry and the legislation (if approved) could make it much easier for California cannabis business to operate. We are excited about this development and will monitor how the legislation advances from here (still requires approval of the Assembly and California Gov. Gavin Newsom to become law).
California is the world’s largest cannabis market and the passing of this legislation could be a major catalyst for the companies that are levered to this market. We have been bullish on the California cannabis opportunity and have highlighted 5 companies that are positioned to capitalize on this market.
Flow Kana: A Leading California Cannabis Brand
During the last year, Flow Kana has become one of the biggest names in the California cannabis industry and this is an opportunity to be watching. The landscape of the California cannabis industry has changed after Select, a leading California cannabis concentrate company, was acquired for approx. $1 billion.
Select has been able to develop a massive brand in California and we are favorable on the implications that this acquisition has on a company like Flow Kana. Like Select, Flow Kana has been able to develop a leading California cannabis brand and we are impressed with how the management team has been able to advance the business.
Flow Kana is a private company and we expect to see the leading California cannabis brand acquired sometime over the next year. When looking at potential California cannabis investments, you want to look for companies that possess traits that similar to Flow Kana and we believe that there is significant opportunity available for investors.
The first phase of the cannabis industry was focused on Canadian cannabis producers. The second phase of the industry was focused on cannabis oil companies. The next phase of the industry will be focused on brands and we believe that companies like Flow Kana will be beneficiaries of this.
TransCanna Holdings Continues to Execute
TransCanna Holdings Inc. (TCAN.CN) has been highly focused on the California cannabis market and we have been closely monitoring this opportunity. Last week, TransCanna Holdings executed a non-binding letter of intent (LOI) to acquire the business and assets of California-based Lyfted Farms, a licensed producer of premium cannabis that owns permanent state licenses for cultivation (nursery), cultivation (grow), and distribution.
Less than a week before announcing a LOI to acquire Lyfted, Transcanna Holdings executed a non-binding LOI to acquire the branding asset package of California-based Tres Ojos Naturals, d/b/a SolDaze. This agreement will enhance the company’s leverage to the California cannabis-infused product market as SolDaze produces cannabis-infused fruit snacks.
During the last year, SolDaze has recorded strong demand for its fruit-based, organic product line and it understands that it needs to expand in order to remain competitive. TransCanna offers SolDaze a platform to expand at its 196,000 sq. ft. facility and provides the necessary capital for immediate growth. We are bullish on the growth prospects associated with the increased scale at TransCanna’s state-of-the-art facility and will monitor how the team is able to execute on this.
Shortly before the SolDaze LOI was reported, TransCanna executed a non-binding LOI with Persuasion Brewing to create a division within TransCanna’s 196,000 sq. ft. facility to establish a Persuasion Brewing division, which will produce a variety of different CBD infusion non-alcoholic beers. During the last year, we have notice a major increase in the interest in cannabis-infused beverages and this represents a significant opportunity for the company.
TransCanna has been quietly building a massive California cannabis company and we will monitor how the team continues to execute. We would not be surprised if the company decided to expand into additional markets in the United States and believe that this could be a major catalyst. TransCanna is a company that has significant levers for growth and this is an opportunity to be monitoring.
Plus Products is a Leading California Edible Brand
Plus Products (PLUS: CSE) (PLPRF: OTC) is a leading California cannabis-infused product brand and this is an opportunity that we have been following since inception. Plus Products is in the middle of a major expansion (fully funded) and is constructing the largest dedicated cannabis food manufacturing facility in the US. The facility will be able to generate $150 million worth of products per year, with the potential to expand to $450 million.
During the last year, Plus Prodcuts has been able to significantly advance its fundamental story while making strategic additions to the management team. The most recent addition was Marc Seguin as Chief Revenue Officer and we find this addition to be significant. In this role, Marc will be driving all aspects of marketing and consumer connection in leading the marketing and sales teams. He will spearhead consumer education about the cannabis industry, lead responsible and conscientious branding and marketing strategies, and is one of the first veteran food marketers to enter the cannabis space.
Marc brings more than 30 years of traditional food and retail branding experience to Plus Products. Most recently, he served as the President and CMO of Popchips, one of the largest privately held snack food companies in the world. While at Popchips, he debuted the brand’s first TV advertising and led the “one snack at a time” local campaign, which resulted in a 72% lift in velocity in target cities for the brand, amongst other initiatives. We consider Marc to be a major value add and are excited to see how he helps advance the business.
In early May, Plus Products released its fourth quarter and full-year financials results and these numbers showed impressive growth. During the quarter and year, the company generated $3.1 million and $8.4 million in revenue, respectively, which represents a 681% and 770% higher than the same periods last year, respectively. The increase was driven by sales of Plus Products’ concentrated brand portfolio (four full-time SKUs and one rotating seasonal). During the quarter, the company continued to increase its production capacity, which allowed its distributor to build up inventory to better service over 300 dispensary customers throughout California.
According to BDS Analytics, the company’s retail sales in the fourth quarter were $10.53 million, an increase of 39.6% over the prior quarter. According to the retail analytics firm Headset, the Plus Uplift Sour Watermelon gummy was the top selling branded product of the more than 20,000 products sold across all cannabis categories in California in 2018. According to BDS Analytics, the Uplift and Restore products remained the #1 and #2 best-selling edible products in California, respectively.
Although the company reported strong growth for 2018, BDS Analytics also found that there were 17% less legal sales in California cannabis sales in 2018 than in 2017 as the market struggled with licensing challenges, regulatory changes, taxes and new testing, labeling and packaging requirements. This sheds positive light on Plus Products and this is a testament to the strength of the management team.
During the last quarter, Plus Products has come under heavy pressure and the shares have come well off its recent highs. The recent pullback is looking to oversold and this decline has created a great opportunity for investors to look at a quality California cannabis brand on weakness.
High Hampton: An Emerging California Cannabis Company
High Hampton Holdings (HC.CN) (HHPHF) is a California cannabis company that has been flying under the radar and is worth watching. 2019 has already proven to be a banner year for the company and we are not even at the mid-point. High Hampton has several major potential catalysts for growth and we believe that the market does not appreciate this aspect of the story.
One of the reasons we are favorable on High Hampton Holdings is due to its portfolio of cannabis brands as well as its focus on distribution. When it comes to the cannabis industry, distribution is one of the most important parts of the market and we are favorable on this focus. High Hampton Holdings made several significant acquisitions during the last year and we have highlighted these transactions below:
- In late 2018, the company acquired Mojave Jane, a licensed manufacturer of premium cannabis extracts and concentrates for the California market. Mojave Jane provides the company with leverage to the smokeless cannabis product market, which we consider to be one of the most attractive verticals in the cannabis industry. We believe that this acquisition will result in the addition of near-term revenue and will create countless synergies within High Hampton’s growing portfolio of California -based cannabis manufacturers and distributors.
- In July 2018, High Hampton entered the smokeless product market through the acquisition of HS Airway Holding, which owns the CALIGOLD Edibles brand. The edibles brand represents a significant asset and has several award-winning chocolate bars in dispensaries across California with other products ready to launch. This acquisition improves the company’s leverage to the California edibles market and we believe that this is an attractive asset.
- Last year, High Hampton enhanced its California distribution network with the acquisition of 420 Realty. Earlier this year, 420 Realty received six California State cannabis licenses to operate at its facility and we are favorable on the growth prospects associated with this.
Although High Hampton has significantly advanced its fundamental story during the last year, the shares have been under pressure and have come well off its 2018 highs. We are favorable on the growth prospects going forward especially after the acquisition of Mojave Jane and the granting of six California State cannabis licenses to 420 Realty. The company has been enhancing its operations from a manufacturing and distribution standpoint and we are bullish on this. We expect the recent acquisitions to quickly prove to be accretive and will monitor how the team executes from here.
Next Green Wave is Reaching an Inflection Point
Next Green Wave Holdings Inc. (CSE: NGW) (NXGWF) is a California cannabis company that is in the early innings of a major expansion and is an opportunity that we are excited about. During the last year, the company has significantly expanded its reach and has attractive leverage to the cannabis opportunity in California and Colombia. Over the next year, we expect to see the company significantly expand its reach in these markets and expect them to be major value drivers for the overall business.
Next Green Wave is a vertically integrated seed-to-sale premium medical and recreational cannabis company that is focused on the California market. The company’s first state-of-the-art indoor facility is 35,000 sq. ft. and is now entering the production phase of its growth strategy. The California cannabis company plans to significantly expand its reach on the 15 acre property which is zoned for the production of cannabis.
Last month, Next Green Wave announced a critical milestone in its plan to capitalize on the California cannabis market and reported to have obtained an occupancy permit from the City of Coalinga for its first state-of-the-art indoor production facility. The granting of the permit means that the company is now authorized as a licensed cannabis producer and has moved more than 10,000 plantlets to activate its growth cycle.
When looking at the most significant potential catalysts for growth, the granting of the occupancy permit ranks up there in order of significance and we are bullish on the growth prospects associated with this. After this permit was granted, Next Green Wave immediately commenced its cultivation program and received its first plantlets to accommodate a perpetual harvest cycle that is comprised of approx. 50 yields per year. The state-of-the-art production facility comes equipped with 14 climate-controlled flowering rooms which are expected to produce an average of 9,150 pounds of cannabis flower annually.
In March, Next Green Wave executed a definitive agreement to acquire SDC Ventures and we continue to monitor this part of the story. SDC is a premium cannabis consumer products goods, manufacturing and extraction leader, having 8 leading cannabis brands with 45 CBD and THC products that have a combined global social influencer reach of over 25 million people and with 100+ million YouTube views.
SDC (WEARESDC) is a team of brand building, cannabis consumer product goods, manufacturing and extraction professionals, that have decades of experience in cannabis in California. SDC has a growing network of retail and online sales channels including 700 Zumiez stores which compliments Next Green Wave’s current distribution opportunities. We believe that this asset will quickly prove to be accretive and will monitor how the team is able to advance this aspect of the story.
Over the next year, we expect the Coalinga facility to prove to be a major value driver for Next Green Wave and we are bullish on this asset. The raw material and biomass that is produced from this facility will be used for extraction for the creation of downstream consumer products (i.e. oils, waxes, tinctures and extracts for custom vaporizer products) that are associated with the company’s WEARESDC partner brands and other licensed cultivators in the wholesale supply-chain.
Next Green Wave is a company that has significant catalysts for growth and we believe that this opportunity has been flying under the radar. When compared to other California cannabis producers, Next Green Wave is trading at a significant discount and we expect this to change as the team continues to execute.
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Pursuant to an agreement between StoneBridge Partners LLC and TransCanna Inc. (TCAN) we have been hired for a period of 180 days beginning February 1, 2019 and ending August 1, 2019 to publicly disseminate information about (TCAN) including on the Website and other media including Facebook and Twitter. We are being paid $7,500 per month (TCAN) for or were paid “ZERO” shares of unrestricted or restricted common shares. We own zero shares of (TCAN), which we purchased in the open market. We plan to sell the “ZERO” shares of (TCAN) 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 (TCAN) 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 High Hampton Holdings Inc. we have been hired for a period of 360 days beginning June 1, 2018 and ending June 1, 2019 to publicly disseminate information about (HC) including on the Website and other media including Facebook and Twitter. We are being paid $6,000 per month for a period of 12 months. We own zero shares of (HC), which we purchased in the open market. We plan to sell the “ZERO” shares of (HC) 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 (HC) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.