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The Canadian cannabis sector has been trending higher and came off its recent lows. This has caught the attention of cannabis investors and we are closely monitoring how the sector trades this week.
Over the last week, several significant company announcements have been reported and today, we have highlighted nine important company updates that cannabis investors need to be aware of.
Emerald Health and Village Farms: A Dynamic Duo
Last week, Emerald Health Therapeutics EHT.V) (EMHTF) and Village Farms International (VFF.TO) (VFFIF) recorded mixed movements after Health Canada issued a Cultivation license for their co-owned Delta 3 greenhouse operation under Canada’s ACMPR.
The price movements were interesting and something worth taking note of due to the disparity of the movements. Last week, Emerald Health rallied more than 15% while Village Farms fell approx. 8%. We are favorable on both companies and will keep an eye on how the shares continue to trade.
The companies co-own a 1.1 million sq. ft. cannabis growing facility that is located in one of the best growing climates in Canada and is conservatively projected to produce 75,000 kilograms of premium cannabis per year.
Village Farms and Emerald aim for the JV to be one of the most consistent and reliable global suppliers of cannabis to wholesalers, distributors and retailers, with the goal to be the low-cost producer at an all-in production cost of less than $1.00 per gram at full production. The JV holds options on two additional greenhouses owned by Village Farms (Delta 2 and Delta 1, with 1.1 million sq. ft. and 2.6 million sq. ft. of growing capacity, respectively).
We are favorable on both Emerald Health and Village Farms. We consider the companies to be long-term opportunities and are favorable on what each company brings to the JV. Village Farms owns significant infrastructure while Emerald Health possesses the expertise when it comes to cultivating cannabis.
MPX: Increasing Market Share in Key US Markets
MPX Bioceutical (MPX.CN) (MPXEF) has been nothing short of an execution story and we are monitoring the recent development closely. Over the last year, MPX has significantly increased its reach, has made strategic investments, partnerships and acquisitions and has reported significantly stronger fundamentals.
Last week, MPX’s subsidiary, CGX Life Sciences, expanded its reach in Arizona after entering a definitive limited liability membership interest and asset purchase agreement to acquire 100% of ABACA, LLC, Ambary, LLC, Tarmac Manufacturing, LLC, and Tower Management Holdings, LLC.
ABACA is a fully-integrated medical marijuana business licensed in Arizona that operates a dispensary under the name The Holistic Center in Phoenix, Arizona as well as certain real estate interests located in Phoenix. Today, MPX will hold an investor call at 10am EST to discuss this acquisition and MPX’s third quarter results.
In return for the acquisition, MPX is paying $15,000,000 in cash and stock ($12 million cash). The company will issue $3 million worth of stock (5,704,479 common shares) and 4,700,000 common share purchase warrants (at $0.67 for five years). In addition, CGX has a contingent liability of up to $6,000,000 payable to the sellers solely out of the proceeds of the revenue generated from the contract between Tarmac and Timeless Select, LLC.
MPX is laser focused on several emerging legal marijuana markets in the United States and we are bullish on this focus. We are monitoring the recent price movements and believe that MPX represents a long-term opportunity
Namaste: Continues to be an Execution Story
Namaste Technologies (N.CN) (NXTTF) recorded a strong gain last week and we are monitoring how the shares continue to trade after a 17% rally last week. This move higher comes after the company’s subsidiary, Cannmart submitted its Affirmation of Readiness (AOR) and video evidence package to Health Canada.
Cannmart is a late-stage applicant for a medical cannabis sales-only license under Canada’s ACMPR. The purpose of the AOR is to provide evidence to Health Canada that Cannmart has completed construction and fit-up of the facility as per the application. Having submitted the AOR, Namaste anticipates Health Canada’s review of the evidence package in due course and the issuance of its ACMPR sales license shortly thereafter. The AOR represents a significant milestone in completion of the construction of Cannmart’s facility.
Namaste has fallen more than 40% from its late December highs and we are monitoring the shares for a bottom. The company has significantly advanced its story and we are bullish on the recent developments. From strong fundamentals to strategic partners, closing a private placement to new supply agreements, Namaste is executing on all cylinders.
Namaste has rallied 25% off its late February lows and the shares have been trending higher since then. We are favorable on the recent developments as well as the recent move higher and continue to monitor the shares closely. Namaste is well off its late December highs and this is a stock investors need to watch.
Invictus Announces Two Significant Milestones
Invictus MD Strategies (IMH.V) (IVITF) traded higher last week after announcing the closing of the acquisition of the land and building next door for $5.2 million for its Phase 2 expansion. The address of the property has been consolidated with AB Labs existing address to allow the existing cultivation and sales license to extend to the property. The milestone allows AB Labs to continue moving ahead with its aggressive cannabis production capacity, as Canada marches towards full legalization during 2018.
The Phase 2 construction adds 40,000 square feet to AB Labs existing 15,600 square feet of cultivation space and is on track for a mid-2018 completion. At the same time, construction planning moves ahead at AB Ventures, located on a 100-acre property near Hamilton. The building team at AB Ventures is now completing all conditions required by the municipality, including a hydrological survey. Immediately following the completion of all of the required documentation, AB Ventures will submit building permit requests.
Another significant development last week was Invictus receiving a notification from Health Canada regarding a Sales license inspection being scheduled for later in March. This is the last step prior to the issuance of a Sales License under the ACMPR. Currently, Acreage Pharms has 191 kilograms of dried marijuana in their vault and we view the granting of a Sales license as a major catalyst.
We remain favorable on Invictus and continue to view the company as an acquisition target. With a market cap below $160 million and a strong balance sheet, we would be surprised if the company was not acquired before the end of the year.
Cannabis Wheaton: A Stock to Watch
Cannabis Wheaton (CBW.V) (CBWTF) has been under pressure during the last month and we continue to remain cautiously optimistic with the company. While we are favorable on the recent announcements, we want to see how the company continues to execute before becoming favorable on the company.
Last week, Cannabis Wheaton entered a binding definitive agreement with its streaming partner FV Pharma to develop all aspects of FV's cannabis cultivation facility in mutually agreed staged phases, with the potential to build one of the largest indoor cannabis cultivation facilities in the world.
Pursuant to the agreement, Cannabis Wheaton will receive a 49.9% stream of all cannabis produced at the facility in perpetuity. The estimated Cannabis Wheaton allocation is approx. 200 million grams of cannabis per year upon completion of all phases of the facility development.
In exchange for the allocation, Cannabis Wheaton’s management team will assist with all aspects of the design, development, financing, build-out and operations of the facility as well as the marketing, branding and distribution of all cannabis and cannabis-derived products generated by the facility.
While this development seemed significant, the market barely responded to it and we continue to monitor the shares from the sidelines. We consider Cannabis Wheaton to be a show me story as we want to see the revenue numbers or growth potential from its portfolio of streaming partners.
Organigram: Focused on Increasing Capacity and International Markets
Last week, Organigram Holdings (OGI.V) (OGRMF) rallied more than 5% after making two significant announcements. We are favorable on these developments and continue to see upside to current levels.
The market responded favorably to Health Canada’s approval of the remaining 13 rooms of Organigram’s 23 room cultivation facility. The company announced that it expects harvests from the Phase 2 expansion to begin the third week of April. The Phase 2 expansion is a significant event as it includes major upgrades to the cultivation and processing systems. These enhancements will lead to immediate and ongoing cost savings as well as improved yields.
Organigram's standardized, data-based approach to production has been trending yields that are in some cases 50% higher than its previous estimates. The company expects this to continue to increase with enhanced improvements in cultivation and environmental design in Phase 3 and Phase 4 as well as through achievements of economies of scale through optimization of its pre-vegetation and cloning processes.
Organigram revised its expected production based on this and can currently produce 22,000 kilograms a year. After Phase 3, Organigram can produce 36,000 kilograms. After completing a three-part Phase 4 expansion, annual production capacity will be 113,000 kilograms.
Organigram is laser focused on expanding into new international markets and capitalizing on new emerging opportunities. Last week, the marijuana producer appointed Guillermo Delmonte as the President of its new international division. Delmonte joins the Organigram team after serving as CEO of ICC Labs Inc. (ICC:APH) (ICCLF), a leading international hemp and cannabis producer. As President of this new venture, Delmonte will lead the planning and execution of the international expansion strategy and work out of multiple locations on behalf of the company.
We are favorable on the recent developments and continue to view Organigram as an attractive long-term investment. The marijuana producer has secured recreational marijuana supply agreements with two provinces and we are favorable on the improved balance sheet. This is a stock investors need to watch.
ABcann: Focused on Two Major Marijuana Markets
Last week, ABcann Global Corporation (ABCN.V) (ABCCF) issued a business update from the CEO who discussed how the company has enhanced its management team, strengthened its balance sheet, improved operational effectiveness, and executed a strategic acquisition.
In mid-2018, ABcann plans to roll-out a complete corporate and product line rebrand to better match the strategic vision and desired product positioning. The company continues to pursue international opportunities and aims to obtain a distribution license for Germany after GMP certification of its Vanluven facility and required stability testing is completed. The company expects to begin exporting cannabis to Australia mid-year, and to Germany close to year-end, and continues to assess opportunities in other international markets.
After closing a $75 million private placement, the company is well-positioned with over $135 million in cash to fund growth initiatives. A disciplined capital allocation process is in place, with the following four priorities:
- Expanding to 500,000 sq. ft. to produce over 30,000 kilograms
- Focusing on branding and product innovation
- Expanding platform to multiple new locations in 2018
- Developing strategic partnerships to broaden reach and scale
We are bullish on the recent developments and will keep an eye on how the company continues to execute. In 2018, the shares are up more than 30% and we see significant upside to current levels if the company is awarded a license to produce and sell medical marijuana in Germany.
Hiku Brands: Continues to Execute on Growth Initiatives
Hiku Brands Company Ltd. (HIKU.CN) (DJACF) was in rally mode last week and the shares recorded a more than 25% gain during this time. We are favorable on the recent move higher and it comes after the company made two significant announcements.
Last week, Hiku issued an update on recent corporate development initiatives and announced that its subsidiary, DOJA Cannabis (a licensed cannabis producer under the ACMPR), submitted its application to produce medical cannabis oils at its second site facility. Hiku also reported to have signed a strategic partnership agreement with Vitalis Extraction Technology, whereby Vitalis will advise on the build-out of the extraction lab, partner on certain research and development initiatives, and supply the facility with Vitalis' Q-90 supercritical CO2 extraction system - which is capable of processing up to 80 kg of cannabis flower per day.
Last month, Hiku’s subsidiary, Tokyo Smoke, with participation by BOBHQ, has been conditionally awarded one of four master retail licenses in Manitoba's highly competitive Request for Proposal (RFP) process for the right to operate retail cannabis stores. The license gives Tokyo Smoke the ability to operate legal retail cannabis stores and an online cannabis sales platform in Manitoba. This represents a significant milestone for Hiku and BOBHQ as one of only four successful entities selected in a highly competitive process.
Hiku Brands was formed after DOJA Cannabis and Tokyo Smoke completed a merger and we are favorable on the combined company. We are favorable on the recent announcements and believe that Hiku offers cannabis investors a differentiated opportunity that is levered to Canada’s recreational market and we have a long-term view on the company. We remain bullish on Hiku due to the funded growth initiatives, the strategic relationship with Aphria, and the continued execution.
Zynerba Trades 10% Lower on a Positive FDA Meeting
Last week, Zynerba Pharmaceuticals (ZYNE) fell approx. 10% and this comes after the release of the results of a positive meeting held with the FDA regarding its planned development strategy for ZYN002 in Fragile X syndrome (FXS). FXS is a rare genetic developmental disability that is the leading known cause of both inherited intellectual disability and autism spectrum disorder.
Based on the company’s dialogue with the FDA, Zynerba expects to initiate a single pivotal study in mid-2018 to support a New Drug Application (NDA) for ZYN002 in FXS. The FDA and the company agree that the study’s primary and key secondary endpoints should assess observable behaviors in patients with FXS as reported by the caregiver using the validated Aberrant Behavior Checklist in Fragile X syndrome (ABC-FXS).
Zynerba plans to initiate a pivotal 14-week randomized, double blind, placebo controlled clinical trial in approximately 200 pediatric and adolescent patients in the U.S., Australia and New Zealand. Zynerba anticipates initiation of this pivotal clinical trial mid-year 2018.
We have been cautiously optimistic with ZYNE and remain so after this announcement. Although the Nasdaq has been roaring off its February lows, ZYNE has continued to trade lower. We continue to believe that the risk-reward scenario favors risk and will monitor how the shares trade from here.