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5 Cannabis Companies Capitalizing On The California GreenRush

Mar 18, 2019 • 11:53 AM GMT+0000
10 MIN READ  •  By Anthony Varrell
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The California cannabis opportunity has been generating significant traction and during the last year, we have seen a remarkable increase in the number of companies focused on this multi-billion-dollar market.

Although we are bullish on the California cannabis market and believe that it has significant growth prospects, it is a very competitive space and it is important for investors to focus on companies that are well positioned for growth or have the opportunity to be an industry leader.

We have been closely following the California cannabis industry and have been conducting research into the companies that are capitalizing on this burgeoning market. Today, we want to highlight 5 companies that are levered to the California cannabis industry and are well positioned for growth.

Plus Products is a Leading California Edibles Brand

When it comes to California edibles companies, we believe that Plus Products (PLUS.CN) (PLPRF) is one of the best positioned and one of the most exciting growth opportunities. The company has been executing flawlessly on its business plan and has done a fantastic job at increasing market share in the California market.

One of the most important aspects of the Plus Products story is the focus on expansion. The company is in the middle of two key expansions (focused on expanding production capacity and focused on expanding its product line) and we consider this to be one of the biggest possible growth drivers going forward.

Plus Products is in the middle of a major expansion (fully funded) and is constructing the largest dedicated cannabis food manufacturing facility in the United States. The facility will be able to generate $150 million worth of products per year, with the potential to expand to $450 million. Plus holds the eighth temporary manufacturing license granted in California and was one of the first to introduce fully compliant products to the state.

In late 2018, Plus Products completed the acquisition of California-based cannabis-infused baked goods brand GOOD CO-OP, in an all-stock deal. This is a significant acquisition and we expect it to prove to be accretive in the first half of 2019. For Plus, the acquisition represents a strategic entry into the third largest edibles category, baked goods, after having achieved the top spot in the edible’s category with only four full-time offerings.

The acquisition also adds an additional 4,800 sq. ft. of manufacturing space and associated equipment in southern California, augmenting its existing 12,000 sq. ft. manufacturing facility. The increased production capacity is a significant aspect of the acquisition and we are favorable on the growth prospects as a result of this.

The cannabis edibles manufacturer has been laser focused on the California cannabis market and we are favorable on this. When it comes to distribution in California, this is an area where Plus Products excels and it has agreements with licensed distributors to sell its products to over 200 licensed dispensaries and delivery service customers. 

Plus Products has significant catalysts for growth and has been executing flawlessly on the California market. With a nationwide expansion on the horizon, the growth prospects for Plus Products are becoming even more enticing and this is an opportunity to be watching.

Halo Labs is Becoming a California Leader

Earlier this year, we issued an update on Halo Labs (HALO: NEO) (AGEEF: OTC) and hopefully you took notice of this. For our readers who are not aware of Halo Labs, the company has been nothing short of an execution story and has been capitalizing on the cannabis oil opportunity. Halo Labs was initially focused on the Oregon cannabis market and has since expanded into California and Nevada. We are favorable on the company’s leverage to these burgeoning cannabis markets and have been closely monitoring this opportunity.

In early February, Halo Labs announced a major milestone and reported to have generated approx. US$2.4MM (CDN $3.1MM) in revenue during the month of January. Less than two weeks after this announcement, the company reported approx. US$2.6MM (CDN $3.4MM) in revenue during the month of February. This is significant and represents new monthly records for the company. The primary reason for the improvement in monthly revenue was the launch of commercial operations at the company’s new state-of-the-art cannabis extraction facility in Cathedral City, California.

When Halo Labs first announced that it would be expanding into California, we viewed this as a major potential growth driver. We are bullish on the growth prospects associated with this asset and the initial success that the company has had. Going forward, Halo Labs expects to generate significantly more revenue from this facility and believes that it utilized approximately 50% of its capacity at the facility during January.

Halo Labs expects this facility to be operating at full capacity by quarter end and we are favorable on the growth prospects going forward. The company said that it is ramping up production capacity on a weekly basis and we will monitor how the numbers continue to increase.

In January, Halo Labs entered into a strategic relationship with MedMen Enterprises (MMEN.CN) and we are favorable on the growth prospects associated with this. Through this relationship, MedMen will merchandise and sell DabTabs at all of its dispensaries in Nevada and California.

Halo Labs is a company that is in the early innings of a major growth cycle and that is worth watching. The fundamental story has significantly improved, and this is a trend that we expect to continue. This is a company we are very excited about and one that investors should be watching.

High Hampton Holdings is Flying Under the Radar

High Hampton Holdings (HC.CN) (HHPHF) is a California cannabis company that we have been closely following due to the attractive valuation, the significant growth prospects, and the company’s new focus.

Last month, High Hampton was able to gain momentum after it announced an evolution of its strategy to properly align with the dynamic legal cannabis market in California. Based on the initial response from the market in regard to this new strategy, we believe this is an important initiative for High Hampton and will monitor how the team executes on this opportunity.

2018 was a significant year for High Hampton and the company made several significant acquisitions and investments during this time. The new strategy fully leverages these acquisitions and investments, allowing High Hampton to become one of the few truly vertically integrated companies in California. As a result, the new strategy leaves High Hampton well positioned to fully execute on the brands and distribution assets that make up its investment portfolio.

The new vision takes a brand forward approach, whereby High Hampton will focus on four key strategy elements:

  1. Own and operate the processes that allow the company to manufacture, infuse, and package high quality, branded products for the recreational and medical markets.
  2. Own and operate the paths to market for branded products through its distribution capabilities in the state’s most lucrative markets in Northern and Southern California.
  3. Take advantage of the valuable data and insights collected through distribution to understand market needs and solve the needs through the introduction of new products and brands that will be produced by its California manufacturing businesses.
  4. Control its supply chain, starting with product-focused strains in its Los Angeles (Cudahy) nursery and continuing through the cultivation cycle.

High Hampton represents a multi-faceted growth opportunity and we are favorable on this new strategy. We expect this new strategy to enhance operations, increase margins, and take the company down the path of profitability. The California cannabis market represents a multi-billion-dollar opportunity and we expect to see significant value created as a result of this new direction.

We believe that High Hampton has been flying under the radar due to the recent change in management. The new management seems to be much more in-line with shareholder interests and this is an important aspect of the story. We believe that High Hampton has significant upside due to its new strategy and this is an opportunity to be watching.

Next Green Wave is a Fully Licensed California Growth Story

Next Green Wave Holdings (NGW.CN) (NXGWF) has significant leverage to the California cannabis market and is in the early stages of a major growth cycle. The company is fully licensed and is constructing two indoor facilities that have approx. 85,000 sq. ft. for cultivation. Next Green Wave plans to expand on this position and increase production capacity at the facilities to 350,000 sq. ft.

One of the reasons why we are monitoring Next Green Wave is due to the planned expansion and the growth potential associated with it. Once the facility is operational, it will be generating significant revenues and will be very efficient. The company’s operations are completely integrated, which allows it to control the complete seed-to-sale process, and the team is focused constructing state-of-the-art facilities for cultivation, nursery/breeding, extraction and distribution.

With an operation of this size (once completed and operational), Next Green Wave will be one of the largest cultivators in California and this represents a significant opportunity. The company is led by a management team that has been very focused on execution and we believe that this is an important aspect of the story. 

The focus on the California market is significant because there will always be strong demand for cannabis. Once the company is producing at full capacity, it will be generating massive revenues in a market where there is continued demand. This creates a significant growth opportunity for Next Green Wave, and we will monitor how the team executes on this.

One of the most attractive aspects of the Next Green Wave story is the amount of distribution that it has. This is an area where the management team has been laser focused and the company is well position and plans to sell its products throughout the state and contract high quality licensed producers and processors that do not have a distribution license to package, market, transport and sell their respective products through its wholesale and retail network.

Next Green Wave is trading at an attractive valuation when compared to its peers and is executing on a major expansion. We believe that the company has significant catalysts for growth, and this is an opportunity to be watching.

Chemesis has an Attractive Growth Profile

One company that have been closely following is Chemesis International (CSI.CN) (CADMF) which has attractive leverage to the cannabis market in North and South America. The company is one of the few cannabis businesses to have legitimate leverage to these burgeoning markets and we have been favorable on this.

Earlier this month, we highlighted Chemesis after the market responded favorably to Chemesis’ plan to add an additional 25,000 sq. ft. of manufacturing capacity to its facility in Cathedral City, California. The expansion comes after the commercialization of its fully compliant state-of-the-art extraction facility and is expected to be completed by the second quarter of 2019.

Once this facility is fully operational, Chemesis will be generating massive revenues in a burgeoning cannabis market and this is something to be watching. One of the most important aspects of this expansion is going to be the impact it has on margins and how the company is able to cut costs. The expansion will maximize efficiencies and will increase production capacity for Chemesis’ brands (California Sap and Jay & Silent Bob’s Private Stash) as well as third party brands.

The ability to produce a significant amount of cannabis products is especially important for brands that are operating in a market as large as California. This facility will play a key role in Chemesis’ growth plans in California and will comply with the state’s regulations for manufacturing, packaging, distribution and transportation, allowing for products to be distributed directly to state licensed dispensaries.

With this expansion, Chemesis will have the ability to further increase its finished goods portfolio, which will include beverages, edibles, and other consumer goods. The focus on increasing the number of products in its portfolio is significant and would have a major impact on the company’s growth profile. We are bullish on the growth prospects associated with this expansion and believe that it will lead to Chemesis having a larger market share in California.

During the last quarter, Chemesis has significantly advanced its fundamental story and has several major catalysts for growth. The company has been able to use its stock as a currency to make acquisitions and we are favorable on the growth prospects as a result of this. Chemesis is in the middle of a major expansion in California and Colombia and has attractive leverage to the cannabis market in Puerto Rico.

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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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