2018 has gotten off to a fast start for the Canadian cannabis sector as companies have been laser focused on execution.
Although there have been some significant announcements, the market has been trading volatile and we remain bullish on the long-term outlook. Canada has been leading the global cannabis industry and we do not expect this trend to change anytime soon.
The recent comments from United States Attorney General Jeff Sessions has made the U.S. marijuana market even more confusing, which is a catalyst for the overall Canadian cannabis industry. These comments are a setback for the U.S. cannabis industry and extends Canada’s head start on this burgeoning industry.
Yesterday, Canadian cannabis stocks surged higher and we are bullish on this move higher. There were several significant developments reported yesterday and today, we have highlighted these announcements.
Aphria Announces a $230 Million Acquisition
Ever since the TSX started to crack down on Canadian cannabis companies levered to the United States marijuana market, Aphria (APH.TO) (APHQF) has refined its focus and has been executing flawlessly.
First, Aphria invested in the DOJA Cannabis (DOJA.CN) (DJACF) and Tokyo Smoke merger. Second, Aphria signed a supply agreement with Australian-based Althea company and acquired 25% of the company for $2.5 million. This is the second supply agreement with the Australian market. In October, Aphria completed its first shipment of cannabis oil to Australian medical life science company, Medlab Clinical Limited.
Although these investments have been significant, Aphria’s acquisition on Broken Coast Cannabis is a game-changer. Broken Coast adds award-winning premium production and a proven West Coast brand to Aphria’s asset portfolio, affirming the company’s market position ahead of the opening of Canada’s recreational marijuana market.
The transaction increases Aphria’s annual production capacity while also providing improved geographic diversification, a cross-Canada distribution platform, and access to over 40,000 medical patients.
We are favorable on the combined company and so is the market. Yesterday, two Canadian brokerage firms raised their price target on Aphria and we remain bullish on the long-term outlook.
Aurora: Completes Investment and Enhances its Team
Aurora Cannabis (ACB.TO) (ACBFF) has been laser focused on execution and the marijuana producer continues to advance and improve its fundamental story. Today, Aurora completed its $55 million investment in The Green Organic Dutchman (private), ahead of the initial public offering (expected in March) and we are bullish on this move.
PI Financial agrees with our view and the Canadian brokerage firm upgraded Aurora to Buy from Hold and raised the price target to $13.50 from $5.50. PI said that Aurora’s investment in TGOD provides a better fit and more shareholder value. We consider TGOD to be a complimentary addition that enhances Aurora’s product offering via its focus on producing premium organic cannabis.
Yesterday, Aurora traded higher after completing a strategic investment Micron Waste Technologies (MWM.CN) (MICWF), a developer of proprietary digester solutions for the treatment of organic waste. Aurora and Micron also finalized a collaboration agreement pursuant to which both companies will collaborate on the optimization of Micron’s technology for the treatment of organic waste generated in the cultivation and production of cannabis products.
Micron will install a digester unit at one of Aurora`s facilities, where the companies will work to optimize the digester for the cannabis industry. Upon successful completion of the project, Aurora intends to acquire multiple units for its various facilities. Micron will retain the intellectual property related to the digester and pay Aurora a 4% royalty for every unit sold to other licensed producers globally. Upon the first sale of a digester within the cannabis industry, Micron will issue 2 million common shares to Aurora.
We are favorable on the completion of these agreements and continue to see upside to current levels. Aurora Cannabis continues to advance its story and we are bullish on the long-term outlook.
Invictus Increases Fully Funded Production Capacity
Invictus MD Strategies (IMH.V) (IVITF) rallied off its lows after announcing that it has received $9,484,547 from the exercise of previously issued warrants and options since the end of the third quarter. With the recent exercise of warrants and options, Invictus MD’s funded capacity is approx. 20,650 kg.
Invictus MD’s total annual capacity after various phases of expansion in 2018 and 2019 is expected to be approx. 76,000 kilograms based on expanding to approx. 520,000 square feet. Invictus MD’s current cash balance is $32 million and has $33 million worth warrants outstanding.
On January 8th, Invictus reported that AB Labs received its sales license for dried marijuana from Health Canada. AB Labs has 130 kilograms of dried marijuana in its vault and will sell 100% of this inventory to Canopy Growth (WEED.TO) (TWMJF), initiating its first revenue stream since inception.
We remain favorable on Invictus MD and consider the company to be an acquisition candidate. Invictus has an attractive valuation (market cap is below $170 million), a strategic relationship with Canopy Growth, a strong balance sheet, and is laser focused on executing on growth initiatives.
Friday Night: Plans to Create Value Prior to the B.A.M. Acquisition
Yesterday, Friday Night Inc. (TGIF.CN) (TGIFF) traded higher after the company issued an update on the acquisition of Body and Mind (BAMM.CN) (BMMJ) and reported plans to spin-off Infused MFG.
As a result of the negotiations between Friday Night and Body and Mind, the implied value of the BAM shares has been adjusted to an implied value of $1.65 per share of Friday Night. The board and management of BAM remains supportive of the transaction notwithstanding the exchange adjustment and the companies expect to enter a definitive agreement imminently.
Friday Night reached an agreement in principle with the holder of the 9% interest of its operating subsidiaries in Nevada. The proposed transaction contemplates the exchange of the minority interest in AMA for an interest in Infused MFG., followed by the spin-out of Infused MFG. as a separate publicly traded company.
Subject to regulatory approvals and advice from corporate advisors, each Friday Night shareholder will receive one share of Infused MFG for every four common shares of Friday Night held. Friday Night has agreed to backstop an initial private placement, so the new company has sufficient cash reserves to both expand and to make strategic acquisitions when available.
This is a significant development for Friday Night and the market responded favorably to this announcement. We will keep an eye on how this situation evolves and investors should monitor this company closely.
Emblem Announces a First-of-Its-Kind Agreement
Emblem (EMC.V) (EMMBF) has been trending lower over the last week and yesterday, the share traded higher with its peers. This rally comes after Emblem’s health and education subsidiary, GrowWise Health Limited, and Durham College (DC) signed a memorandum of understanding to begin integrating cannabis-related learning into DC’s post-secondary programs and building professional development courses.
The agreement builds on the college’s highly successful Medical Cannabis Fundamentals for Business Professionals course, which was introduced in 2017 by DC’s School of Continuing Education in collaboration with GrowWise. This development paves the way for more cannabis-focused courses to be offered and will also allow for DC to begin offering its students work placements with cannabis industry partners.
In addition to providing subject matter expertise as well as funding, GrowWise and Emblem will work collaboratively with DC to identify applied research and experiential learning opportunities both in the medical and recreational cannabis industries.
Emblem is very focused on the medical marijuana industry and this initiative is in-line with the company’s mission. We are favorable on Emblem and view the company as an acquisition candidate due to the focus on cannabis oil, its attractive valuation, and its growth initiatives focused on increasing production capacity.
Cannabis Wheaton Accelerates Warrants
Today, Cannabis Wheaton (CBW.V) (CBWTF) decided to exercise its right under the warrant indenture governing the common share purchase warrants issued on June 29, 2017. Pursuant to the terms of the indenture, the company may accelerate the expiry date when the closing price of the common shares exceeds $2.00 for 10 consecutive trading days.
As of the close of markets on January 15th, the closing price has exceeded $2.00 for a period of 10 consecutive trading days. Effective today, the warrants are set to expire at 4pm on February 15th. Any warrants remaining unexercised after the new expiry date will be cancelled.
As of close of market January 15th, 38,467,233 warrants had yet to be exercised. Each warrant is exercisable to acquire one common share at $1.50. If all the warrants are exercised, proceeds will total $57,700,850.
On Friday, CBW.V surged higher in the final 10 minutes of the trading day and barely closed above the $2.00 level. CBW.V recorded a significant gain yesterday and we remain cautious at current levels. We are interested in seeing how many of the warrants are exercised and will monitor the shares from the sidelines.
Liberty Health: Opens a Medical Marijuana Dispensary in Florida
Liberty Health Sciences Inc. (LHS.CN) (LHSIF) announced a major milestone and opened its inaugural medical cannabis dispensary in Florida, strategically located in The Villages, the state’s largest retirement community. The company announced plans for a fifth Florida location in Fort Myers to open in early 2018, joining previously announced dispensaries opening in the first half of this year in Fort Lauderdale, St. Petersburg and Port. St. Lucie.
Liberty announced that its fifth Florida Cannabis Education Center will be strategically located in Fort Myers. With approximately 63,900 medical cannabis patients registered with the state, Liberty dispensary locations in Florida are chosen based on the needs of the local patient population and the number of prescribing physicians in the vicinity.
All Liberty locations in Florida will offer a wide variety of products and brands such as Aphria and Mary’s Medicinals, providing patients in need with a variety of options to meet their needs across all state-approved methods of cannabis consumption including vapes, oils, tinctures and capsules.
We are favorable on this development and will monitor how the shares trade following yesterday’s pullback. Liberty Health has been under pressure and this is a stock investors need to watch.