2020 is expected to be a breakout year for the cannabis industry and with primary growth drivers to be the opening of new markets, the maturing of existing markets, and the increasing number of products for purchase by recreational consumers in Canada.
During the last year, the cannabis sector was under substantial pressure and the valuations associated with these companies plummeted across the board. Although the recent trend has been to the downside, there is a subset of companies that have been executing on previously announced initiatives and that represent attractive growth opportunities. We believe that the recent pressure makes the sector look much more attractive from a valuation standpoint.
Today, we have highlighted 5 companies that are capitalizing on different verticals in the industry.
Aleafia Health (ALEF.TO) (ALEAF)
Aleafia Health has been highly focused on the Canadian and the international cannabis opportunity and has been nothing short of an execution story. With leverage to several major international cannabis markets, Aleafia Health is positioned to record substantial growth in 2020. One of the reasons we are favorable on Aleafia Health is its focus on profitability and growth. The company has been able to expand its position in several emerging cannabis markets and has been able to control costs while doing so. When it comes to Aleafia Health, the strength of the balance sheet and the management team’s ability to effectively grow the operation are two very important aspects of the story and this is something that the market needs to be aware of.
Through a series of inorganic and organic growth initiatives, Aleafia Health has been able to capture market share in several major cannabis markets and we are bullish on the growth prospects associated with the international side of the business. In 2020, we expect to see the company generate significantly more revenue from its operations in Australia, Canada, and the European Union (EU). At current levels, we believe that the market underappreciates the growth prospects associated with Aleafia Health and find the risk-reward profile to be attractive.
When analyzing cannabis companies, we are looking for businesses that possess certain traits. We are primarily interested in companies that are executing in an efficient manner, are well capitalized and well positioned to take advantage of unique growth opportunities and are led by a management team that has a proven track record of success. The company has substantial potential catalysts for growth and is trading at a considerable discount when compared to its peers. We believe that Aleafia Health possesses these traits and is well positioned to record substantial growth in 2020 and beyond.
PharmaCielo (PCLO.V) (PHCEF)
Many analysts consider PharmaCielo Ltd. to be the leading operator in Latin America and this is an opportunity that we have been following for several years. 2019 was a tough year for the Latin American cannabis company and it was under pressure with the rest of the sector.
2020 is expected to be a banner year for PharmaCielo and this is an opportunity that we will continue to closely follow. One of the reasons we are excited about the opportunity is due to the strength of the balance and sheet and the potential catalysts that it has for growth. In late November, the company released quarterly financial results and the market had a mixed response to these numbers.
As of September 30th, the company reported to have more than $20 million of cash and short-term investments. In the near future, PharmaCielo will complete the expansion of its extraction and processing center (extraction capacity is expected to be 28,900 kg of cannabis oil per year) and this would be a major catalyst for the story. When compared to other operators in Latin America, we believe that PharmaCielo is the most advanced and this an opportunity to have on your radar in 2020.
Namaste Technologies (N.V) (NXTTF)
From a valuation and execution standpoint, we continue to consider Namaste Technologies to be one of the most exciting opportunities in 2020 and this is a company that we are bullish on. Namaste is levered to the changing landscape of the Canadian cannabis industry and is well positioned to capitalize on an opportunity that is being referred to as Cannabis 2.0.
From a growth standpoint, 2019 was a banner year for Namaste and we expect 2020 to be even more significant. Through CannMart (a wholly owned subsidiary of Namaste), the company is well positioned to capitalize on the expansion of the Canadian cannabis market, and this is a trend that is expected to be a major revenue generator. CannMart’s online store offers one of the largest selections of legal cannabis products from established cannabis producers in Canada and around the world.
Last month, CannMart improved its leverage to the cannabis 2.0 opportunity in Canada after entering into an exclusive licensing agreement with Phyto Extractions. The agreement grants CannMart Labs with an exclusive license to use Phyto trademarks on certain cannabis products such as cannabis vaporizing pen cartridges and batteries; cannabis capsules; and cannabis tincture bottles and jars.
This announcement came a few weeks after CannMart entered into a licensing and manufacturing agreement with TREC Brands. Through TREC, CannMart will be focused on bringing high quality products to TREC’s brand conscious customer base under the WINK cannabis brand. CannMart is introducing WINK Cannabis dried flower products into Saskatchewan with additional products and markets in the near future.
CannMart has strong distribution across Canada and this will play an important role in the success of the brands that it has formed relationships with. As of August 31st, Namaste reported to have more than $49 million of cash on the balance sheet and is well positioned to take capitalize of strategic growth opportunities. We believe that the management team has done a great job when it comes to controlling cost and ramping revenues. At current levels, Namaste is trading at a considerable discount to its peers and this is an opportunity to be watching. At these levels, Namaste is trading at 2x cash (as of August 31s) and find this to be significant when analyzing the risk-reward opportunity.
California is the largest cannabis market in the world, and this is an opportunity that we have been bullish on for several years. In 2019, we saw a significant increase in the number of companies that are focused on this market and this is a trend to be aware of. From cannabis brands to cannabis cultivators, the influx in the number of companies that are focused on the opportunity in California and we are targeting specific businesses when it comes to this market.
Last month, we met with ManifestSeven (M7) while at the MJ Biz Conference in Las Vegas and were impressed with the management team that is behind the operation. M7 is California’s first omnichannel model for legal cannabis, servicing both business-to- business (B2B) and business-to-consumer (B2C). The management team is highly focused on creating value for shareholders and bringing the business down a path of profitability.
One of the reasons we are excited about M7 is related to the structure of the business and the growth prospects associated with the operation. The company does not touch the cannabis plant and represents an ancillary opportunity. We are favorable on the way the business will be ready to capitalize on the plant-touching side of the industry once cannabis is legalized at the federal level in the US and believe that this is a long-term catalyst for the operation.
Another reason we are bullish on M7 is due to the amount of due diligence that has been conducted on the sector and the types of businesses that it has acquired. In 2014, the company started out as a venture investment firm known as MJIC, and evaluated hundreds of cannabis and ancillary companies to potentially invest in. This provided the company with a unique opportunity to analyze some of the most exciting private businesses and we are favorable on the assets that have been acquired.
By the second quarter of 2020, M7 expects to be cash flow positive and we will monitor how the management team continues to ramp the business. The company does hold any debt and has been reporting strong top-line growth. In the near future, M7 expects to commence trading on the Canadian Stock Exchange (CSE) and this is a private opportunity that we are excited about. We believe that the timing of the listing is ideal and are favorable on the economics associated with the operation. M7 is a business with significant potential catalyst for growth and is one to be watching.
Canopy Growth Corp.
Although 2019 was a tough year for Canopy Growth (WEED.TO) (CGC), the company has been highly focused on the global cannabis opportunity and has been executing on a multi-national expansion. Canopy Growth has substantial growth prospects and has been announcing strong revenues in recent quarterly financial reports.
One of the biggest headwinds for Canopy Growth in 2019 was the firing of Bruce Linton as Executive Chairman and CEO. The company recently hired a new CEO and we will monitor how he is able to advance the operation on a going forward basis. The management team remains the biggest question in place when it comes to Canopy Growth and this is an important aspect of the story.
When analyzing Canopy Growth, the strength of the balance sheet stands out as a major positive of the company. With approx. $2 billion of cash on the balance sheet, the company is well positioned to capitalize on unique growth opportunities and make further acquisitions. During the last quarter, we have seen a slowdown in the pace of acquisitions as it relates to Canopy Growth and this is a trend that we will be following in 2020.
In late 2019, Canopy Growth was hit by a series of downgrades from leading broker-dealers and this is an important trend to be aware of. Bank of America is the most high-profile broker-dealer to cover Canopy and the bank recently issued the Canadian cannabis producer a Buy rating. We are favorable on the leverage that Canopy Growth has to the global cannabis market and believe that this is an opportunity to be watching.
Pursuant to an agreement between StoneBridge Partners LLC and Namaste Technologies Inc. (N)(NXTTF) we have been hired for a period of 180 days beginning October 1, 2019 and ending April 1, 2020 to publicly disseminate information about (N)(NXTTF) including on the Website and other media including Facebook and Twitter. We are being paid $7,500 per month (N)(NXTTF) for or were paid “0” shares of restricted common shares. We own zero shares of (N)(NXTTF), which we purchased in the open market. We plan to sell the “ZERO” shares of (N)(NXTTF) 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 (N)(NXTTF) 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 Manifest7. (MSVN) we have been hired for a period of 180 days beginning August 1, 2019 and ending February 1, 2020 to publicly disseminate information about (MSVN) including on the Website and other media including Facebook and Twitter. We are being paid $10,000 per month for or were paid “ZERO” shares of unrestricted or restricted common shares. We own zero shares of (MSVN), which we purchased in the open market. We may buy or sell additional shares of (MSVN) 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 Aleafia Health Inc. (ALEF) we have been hired for a period of 180 days beginning August 15, 2019 and ending February 15, 2020 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.