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5 Canadian LP Updates Investors Need To Know

Apr 11, 2019 • 12:50 PM GMT+0000
7 MIN READ  •  By Anthony Varrell
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The last week has been a relatively busy period for Canadian Licensed Producers (LPs) and this a trend to be watching.

Last year, Canada legalized recreational cannabis, and this was a major catalyst for the companies that are levered to this market. Later this year, we expect to see a major change in regulations, whereby cannabis oil and cannabis infused products (edibles and drinkables) will be legalized and we are favorable on this opportunity.

Today, we have highlighted 5 Canadian LPs that have recently reported a significant development. These companies are highly levered to the Canadian cannabis industry and we believe that these are opportunities to be watching.

Aurora Cannabis: A Global Execution Story

Last week, Aurora Cannabis (ACB.TO) (ACB) traded slightly higher after reporting to have been selected by the German Federal Institute for Drugs and Medical Devices as one of three winners in the public tender to cultivate and distribute medical cannabis.

This represented a massive development for the Canadian cannabis producer, and we are favorable on the impact that this has on its European operations. The German medical cannabis market represents a significant opportunity and we are favorable on Aurora Cannabis’ leverage to this market.

Aurora was awarded the maximum number of 5 of the 13 lots in the tender over a period of four years with a minimum supply of 4000kg total. The cannabis produced will be sold to the German government and supplied to wholesalers for distribution to pharmacies. The company’s concept focused on the construction of a highly secure, state-of-the-art, EU GMP compliant indoor cultivation facility with flexibility for future growth. The new facility will be located at the industrial park in Leuna, Saxony Anhalt, near Leipzig. The facility is designed to have capacity in excess of the tendered amounts to provide flexibility in meeting future growth.

Aurora Cannabis has been a leader in the Canadian cannabis industry and has significant leverage to the international cannabis opportunity. During the last quarter, the shares have been trending higher and this is an opportunity that we are excited about. We consider Aurora Cannabis to be a long-term play on the cannabis sector and this is a company to be watching.

Emerald Health Continues to Advance its Story

During the last year, Emerald Health Therapeutics, Inc. (EMH.V) (EMHTF) has been nothing short of an execution story and has been advancing its operations across Canada. Earlier this week, the Canadian cannabis producer announced that its Québec facility has received its Standard Processing License from Health Canada and this represented a significant development.

This granting of this license is significant and means that, in addition to the facility’s right to cultivate and sell cannabis flowers, it can now extract, manufacture, synthesize, test and sell next-generation cannabis products. Emerald Health plans to position itself to launch these products in conjunction with the expected legalization of a broader spectrum of cannabis products in Canada in October 2019.

This represents a significant opportunity for Emerald Health and we are favorable on the growth prospects associated with this license. The license represents a major development and also allows the company to build and operate a laboratory for the research and development of cannabis-based products. Emerald Health has been a top performer in 2019 and this is an opportunity that we are closely watching.

Organigram Holdings: An Opportunity to be Watching

In late December 2018, Organigram Holdings Inc. (OGI.V) (OGRMF) was under considerable pressure and we highlighted this opportunity several times during this decline. Following this decline, the Canadian cannabis producer has been a top performer and the shares have rallied more than 100% during this time.

Earlier this week, Organigram appointed James Cavanagh as its Chief of Staff and we are excited about this change. Cavanagh is an experienced professional who has worked with Canadian and global clients across a variety of industries to drive top and bottom-line growth as well as organizational and operational improvements.

As Chief of Staff, Cavanagh will play a central role in supporting the company’s executive, helping direct the company’s overall strategy, resources and focus. He will work directly with all executive team members to help ensure corporate priorities are maintained while identifying procedural efficiencies.

Although Organigram has been trending higher and has been a top performer, we are favorable on the Canadian cannabis producer’s growth prospects and will monitor how the shares continue to move. The company is in the middle of a major expansion and has significant catalysts for growth. This is an opportunity we are monitoring and suggest keeping an eye on this company.

CannTrust Holdings: An Expansion Story

Earlier this month, CannTrust Holdings Inc. (TRST.TO) (CTST) was under considerable pressure and the shares dropped lower after the Canadian cannabis producer reported quarterly financial results. Following this decline, the shares have been trending higher and have been coming off its lows.

Earlier this week, CannTrust had its cultivation and processing permit under Health Canada Cannabis Regulations amended to include the final 20% of its Phase 2 expansion. The entire 450,000 sq. ft. of its perpetual harvest greenhouse in Ontario is fully licensed. CannTrust’s expected production ramp is as follows:

  • The last 20% of the Phase 2 expansion is expected to be operating at full capacity by the end of the second quarter of 2019.
  • Pending Health Canada approval, the company anticipates planting on its previously announced outdoor land acquisition of 81 acres in the second quarter of 2019 and expects to realize a yield of approximately 1,000kg per acre in 2019. Total 2019 production from this harvest is expected to be approximately 75,000kg.
  • With additional land under letter of intent anticipated to be secured in the near term, the company’s outdoor cultivation operation is expected to total 100,000kg to 200,000kg of production in the second half of 2020. Production from outdoor cultivation will primarily be used for extraction purposes for products that we anticipate will be permitted based on proposed regulations for additional cannabis products, which include edibles and inhaled extract products.
  • The company’s Phase 3 expansion of its perpetual harvest greenhouse is expected to add a further 50,000kg of capacity beginning in the second half of 2020. Phase 3 includes productivity and automation enhancements over Phases 1 and 2. Production from the Phase 3 expansion is also subject to Health Canada approval.
  • CannTrust’s combined cultivation operations are expected to reach a total annualized capacity of 200,000kg to 300,000kg in the second half of 2020.

Although CannTrust has been under considerable pressure, this approval is significant, and we are favorable on the larger production footprint. The company has been in the middle of a major expansion and this is an opportunity that we continue to follow. The recent price movements have been volatile, and this is something that we are watching.

Beleave: A Volatile Mover to be Watching

Last week, Beleave (BE.CN) (BLEVF) surged higher on Friday and ended the week on a high note. This is an opportunity that we have been cautiously monitoring and will be watching how the team continues to execute.

Earlier this week, Beleave’s wholly-owned subsidiary, Beleave Kannabis Corp., started selling cannabis oil products at its licensed facility in Hamilton, Ontario. Beleave has completed its first wholesale transfer of two bulk lots of cannabis oil to another standard processor license holder, as well as having begun cannabis oil product sales to medicinal patients through its online store.

In January, the company received authorization from Health Canada to sell cannabis oil products and we are favorable on the quick turnaround time for execution. Current product offerings available to medical patients include a blended and balanced THC/CBD cannabis oil.  Cannabis oil production is already underway at Beleave’s industrial extraction laboratory using proprietary (patent-pending) methods. In addition to producing oils for Beleave’s own patients, the company is actively engaged in contract negotiations to offer the same extraction, processing, packaging and distribution services to other micro and standard processor licensed companies.

When it comes to Canadian cannabis producers, Beleave is not a company that typically comes to mind. When you look at the size of the price movement from Friday and combine this with the cannabis oil announcement, you have a story worth watching and we will be keeping an eye on how the shares trade from here.

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Authored By

Anthony Varrell

Anthony Varrell is Managing Director of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.

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