During the last year, the cannabis sector has been in the middle of a major transition that has been centered around the expansion into new markets. The European Union (EU) has been a point of emphasis for these cannabis operators and we are favorably on this strategy for growth.
When compared to the Canadian and US cannabis markets, the opportunity in the EU is much less saturated and is in the early innings of a major growth cycle. Currently, the production of cannabis is not allowed in most of Europe and the product is imported from either Canada or the Netherlands.
Over the next few years, the EU cannabis market is expected to record substantial growth as new markets open and existing markets mature. During this time, we also expect to see additional countries approved to export cannabis to the EU and are bullish on the amount of value that can be created through this.
If you look at the companies that are currently capitalizing on the EU cannabis opportunity, you will notice that a few industry leaders have been ahead of the curve and have been generating significant revenues in this market. Today, we have highlighted 5 cannabis companies that have been highly focused on the EU and are positioned to capitalize on this burgeoning market.
Aleafia Health Inc. (ALEF.TO) (ALEAF)
Aleafia Health has been nothing short of an execution story when it comes to the Canadian and the international cannabis opportunities. At current levels, the Canadian cannabis producer is trading at a considerable discount to its peers and we find the risk-reward profile to be attractive.
Earlier this year, Aleafia Health acquired Emblem and the transaction has quickly proved to be an accretive acquisition for the business. From the domestic market to international markets (especially Europe), Emblem will play a key role in the success of the operation and we believe that the market has not recognized the leverage that this asset provides to high growth verticals in the cannabis industry.
A few months ago, Emblem reported a major milestone and secured two Health Canada license amendments to expand processing capacity and allow for the sale of new product formats at its Paris processing facility. The amendments apply to the licensed and operational Paris location, which processes all of the company’s extraction, packaging and order fulfilment for Canadian and international sales.
This development should quickly prove to be a catalyst for Aleafia Health. The facility is entirely dedicated to the extraction, production, packaging and distribution of high-margin, value-added cannabis health and wellness products. The expansion is purpose-built to meet European Union Good Manufacturing Practices (EU-GMP) certification requirements and Aleafia Health will be able to begin to export medical cannabis products to the EU. We expect to see strong demand for these products and believe that the market does not fully understand the amount of value that can be created through this.
Prior to the acquisition, Aleafia Health and Emblem were both focused on the international cannabis opportunity. The companies were targeting different markets with Aleafia Health was focused on the Australian market via CannaPacific, and while Emblem was focused on Germany via a joint venture with German pharmaceutical wholesaler and logistics company Acnos Pharma GmbH.
A few months ago, Aleafia Health recorded a major milestone and reported to have successfully secured export and import permits that will allow for its first international product shipment to be distributed by CannaPacific. The company owns 10% of CannaPacific which has been highly focused on increasing production capacity to capture additional market share in Australia. In 2020, we expect to see more developments as it relates to the CannaPacific relationship and we are bullish on the market opportunity for Aleafia Health.
Aleafia Health entered the German medical cannabis market. This is a market that we have been excited about and expect to see the company expand the scope of Emblem’s joint venture partnership with German pharmaceutical wholesaler and logistics company Acnos Pharma GmbH. According to the joint venture agreement, the company owns 60% of the joint venture and will leverage Acnos’ supply chain network including access to approximately 20,000 pharmacies and 110 distribution centers to capitalize on the EU opportunity.
We are bullish on the leverage that the Aleafia Health has to strategic international cannabis markets and expect to see the management team build upon its success in 2020. We are of the opinion that the market does not fully appreciate the amount of value that the company can generate from international cannabis markets and believe that the market is missing out on something significant.
Halo Labs (HALO: NEO) (AGEEF)
When it comes to the number of US companies focused on international cannabis markets, only a few names come to mind. Many of those companies though, have failed to execute and this is a trend that investors need to be aware of.
Last year, we started to follow Halo Labs (HALO: NEO) (AGEEF) which was laser focused on the cannabis concentrate market in Oregon. After proving to be successful in this highly competitive cannabis market, the company expanded into California and Nevada. These two markets have proved to be incremental value drivers for the business and we are favorable on how the company’s fundamentals have been improving.
In late 2018, Halo Labs expanded out of the US and entered Lesotho, the first African country to grant medical marijuana licenses for cultivation and patient use. Under the initial agreement, Halo said it would provide management services and expertise to build, design and operate cGAP cultivation and cGMP extraction facilities in exchange for a 20% equity position in Bophelo Bioscience as well as a royalty on future extracted products.
This market quickly proved to be a major opportunity for the US cannabis concentrate company and several months later, Halo Labs agreed to buy Bophelo Bioscience & Wellness for about $18.4 million as it looked to expand into global markets. The management team expects the transaction to strengthen the company’s position in Lesotho, a country quickly becoming the continent’s export gateway to the global cannabis market, and we will monitor this aspect of the story on a going forward basis.
Over the next year, we expect to see Halo Labs report significant advancements as it relates to the domestic and the international cannabis opportunity. We believe that the management team has proven itself to be able to execute at a very high level and this is an opportunity that we are excited about as 2019 comes to close.
GW Pharmaceuticals (GWPH)
When compared to the rest of the cannabis sector, GW Pharmaceuticals has taken a different approach as it relates to the EU market. The Nasdaq traded biotech company was initially approved sell Sativex in certain EU markets, a major milestone for the company and for the entire cannabis sector. Sativex is a cannabis-based treatment to treat patients who suffer from Multiple Sclerosis (MS) and was the first cannabis treatment to be approved to be sold to patients.
Although Sativex represented a major milestone for GW, the market was most excited about the company’s Epidiolex product. Epidiolex was created for patients who suffer from the most severe types of epilepsy and it has proved to be an effective treatment for thousands of such people.
During the last few quarters, GW has been recording ramping revenues and this is a trend that is expected to continue. The launch of Epidiolex in the US has proved to be a major catalyst for the biotech cannabis company, and we expect the product to continue to be a major value creator for the business.
GW has a deep pipeline of pharmaceutical products that are in various stages of FDA testing and this is an opportunity to be aware of. Although the company still generates strong revenues in the EU, the US has been the most significant market for the business and this is a trend that we will continue to follow.
Canopy Growth Corporation (WEED.TO) (CGC)
From an operational standpoint, 2019 has been a banner year for Canopy Growth Corp and we expect 2020 to be even more significant. During the last year, the Canadian cannabis producer has been executing on significant expansion (taking place on several continents) and we are closely following how the story continues to advance.
Earlier this week, Canopy Growth appointed David Klein as CEO and we expect him to play a key role in how the operation continues from here. David has served in a number of senior leadership capacities over the past 14 years at Constellation Brands and has extensive CPG and beverage alcohol industry experience as well as experience operating in highly regulated markets across the globe. David is an experienced strategist with a deep understanding of how to build enduring consumer brands while leveraging operational scale across a dispersed production footprint.
With more than $2 billion of cash on the balance sheet, Canopy Growth is well positioned to execute on organic and inorganic growth opportunities. When compared to the entire cannabis sector, Canopy Growth has the strongest balance sheet (by far) and this provides the operation with a major competitive advantage. Going forward, the company can easily acquire strategic cannabis assets in markets like the EU and we will monitor the types of strategies employed by the company to grow the business.
With a new CEO at the helm, a major headwind has been removed from Canopy Growth and we find this to be of significance. Over the next year, we expect to see the new leadership team place a major emphasis on the EU and this is an opportunity to be watching. Canopy Growth has the opportunity to be the clear winner in the battle for market share in the EU and this is something that we are excited about.
Isracann Biosciences Inc. (CSE: IPOT) (XFRA: A2PT0E) (OTC: ISCNF)
When analyzing the EU cannabis market, we look at more than just the companies that are currently executing on this opportunity. It is important to understand the landscape of the cannabis industry from a regulatory standpoint and we believe that Israel will be one of the most significant beneficiaries of the growth of the EU cannabis market.
Isracann Biosciences Inc. (CSE: IPOT) (XFRA: A2PT0E) (OTC: ISCNF) has been highly focused on the Israeli cannabis market and is working to gain a first-mover advantage on the export opportunity into the EU. One of the most important aspects of the Isracann story is related to the partners that are in place. The company formed relationships with some of the world’s top experts on architecture (used AgroPlan Ltd.), on security (used the A.R. Factor Group), and in agronomy (used LinC by Growing Smart Ltd.).
Isracann is in the middle of a major expansion and we expect the completion of this project to be a major catalyst for the business. Once the company completes the construction of a state-of-the-art cultivation facility, it will be able to capitalize on the EU export opportunity and we expect the market to be a major revenue generator in 2020 and beyond. We see several potential catalysts for Isracann in the coming quarters as it begins to scale operations and as the regulatory climate improves.
Germany is the first market that Isracann plans to target in the EU and we are bullish on this opportunity. Currently, Germany has no cultivation laws and imports cannabis from international markets. With a population of 80+ million, Germany represents a huge market and Isracann plans to capitalize on it. Soon after Israel joins Canada and the Netherlands as countries that allow for the legal export of cannabis, we expect to see the company plant its flag in Germany and will monitor this aspect for the business.
In 2020, Isracann expects to complete its first harvest and plans to ramp up production capacity from there. The proposed state-of-the-art facility is located on a property that offers significant room to expand and we are favorable on the growth prospects associated with this. In 2020 and beyond, we expect to see increasing demand for Israeli cannabis products and the focus on increasing production capacity is vital for the company’s growth potential. The company has visible catalysts for growth and we believe that this opportunity is underappreciated by the street.
Pursuant to an agreement between StoneBridge Partners LLC and Aleafia Health Inc. (ALEF) we have been hired for a period of 90 days beginning August 15, 2019 and ending November 15, 2019 to publicly disseminate information about (ALEF) including on the Website and other media including Facebook and Twitter. We are being paid $8,000 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.
Pursuant to an agreement between StoneBridge Partners LLC and Isracann Biosciences (IPOT) we have been hired for a period of 365 days beginning December 9, 2018 and ending January 9, 2020 to publicly disseminate information about (IPOT) including on the Website and other media including Facebook and Twitter. We are being paid $10,000 per month (IPOT) for or were paid “ZERO” shares of unrestricted or restricted common shares. We own zero shares of (IPOT), which we purchased in the open market. We plan to sell the “ZERO” shares of (IPOT) 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 (IPOT) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.