Although 2020 was a challenging year for the global economy, the cannabis industry has been recording strong growth and this is a trend that we expect to continue.
The COVID pandemic has played an important role in showing that the cannabis industry is defensive, and we are favorable on how the industry was able to adapt to a new market environment. From implementing a curbside sales program to declaring the cannabis sector to be essential, the industry remained operational in the early days of the pandemic and we are favorable on how businesses performed during this time.
On a comparative basis, the Canadian cannabis industry recorded impressive growth in 2020. When compared to the prior year, the amount of monthly revenue that was being generated by the Canada cannabis sector has more than doubled on average.
Based on these revenue metrics, we believe that Canadian Licensed Producers (LPs) are going to be reporting strong growth in future quarters. Although theses operators have been trending higher and rallying off its 2020 lows, we believe the market is overly focused on LPs that have strong brand recognition.
Some of the operators that have significant market awareness have not been able to execute on previously announced growth initiatives. We believe that some of these operators are trading at a substantial premium to its peers when valued on several profitability and growth metrics.
Aleafia Health Thesis
Aleafia Health Inc. (AH.TO) (ALEAF) is a Canadian LP that has been nothing short of an execution story and we believe that it is flying under the radar. During the last year, the company has executed on series of strategic growth initiatives that are levered to several attractive verticals of the cannabis industry and find the opportunity to be attractive due to the following:
Aleafia Health will be reporting in March and we are expecting a much improved balance sheet once the $25M in convertible debt is wiped out. The company has already addressed plans to repay the note holders prior to the date of maturity. The repayment will result in a $2M reduction in annual interest expense which will go straight to the bottom line.
- Aleafia Health has constructed a state-of-the-art facility that complies with European Union Good Agricultural and Collection Practices (EU GACP) which allows them to export product to certain international markets
- The company has been recording growth on the medical, recreational, and international side of the cannabis industry and we expect this trend to become more significant this year
- Aleafia Health has significant potential catalysts for growth, and we believe the business has reached an inflection point
- From a balance sheet standpoint, Aleafia Health is well capitalized and has been executing on a cost cutting strategy and has reported positive adjusted EBITDA in three of its last four quarters
- The management team has a proven track record of success and we are favorable on the direction they are bringing the business
- On a comparative basis, we find the valuation to be attractive and believe that Aleafia Health is trading at a significant discount to its peers
About Aleafia Health
Aleafia Health is a vertically integrated Canadian LP that sells cannabis health and wellness services and products in Canada and in international markets. The company has an attractive operating structure, and the business is comprised of medical clinics, education centers, and facilities for the production and sale of cannabis.
The Canadian LP owns two licensed indoor cannabis production facilities and one licensed large-scale outdoor cultivation facility. Aleafia Health has 160,000 square feet of licensed greenhouse cultivation space and 3.7 million square feet of outdoor cultivation space. With these facilities, the company can cultivate approx. 129,500 kilograms of cannabis and extract approx. 40,000 kilograms of cannabis per year.
Aleafia Health has been focused on the cannabis 2.0 opportunity and owns a diverse cannabis product portfolio that is comprised of high-margin derivative products (i.e. oils, capsules, and sprays). That’s been further built with a recent expansion to vape cartridges, sublingual strips, and ultra high-potency CBD oil. We are favorable on the approach that Aleafia Health’s management team used to execute on the cannabis 2.0 market and expect this vertical to record strong growth in 2021.
On the clinic side of the business, Aleafia Health has seen more than 75,000 patients and we are favorable on how these assets have supported growth on the medical side of the industry. The company operates one of the largest medical cannabis clinics in the world (has locations in three contents) that are staffed by medical doctors, nurse practitioners and educators.
During the last two years, Aleafia Health has executed on a series of organic and inorganic growth initiatives. The acquisitions that were made by the company have proven to be accretive and strategic in nature. As a result of this, we believe Aleafia Health represents a well-rounded business that has an attractive growth profile and think the market does not fully understand the amount of value that be generated through its business units.
Aleafia Health owns a best-in-class medical cannabis data aggregation platform that has more than 10 million data points that can be used for proprietary illness-specific product development. Data is a strategic asset and companies have shown a willingness to pay significant amounts of money to access to this type of information and better understand cannabis at the patient and the consumer level. We believe the data represents a key pillar of Aleafia Health’s long-term strategy and will monitor how the management team is able to capitalize on the data in the near and long-term.
Pursuant to an agreement between StoneBridge Partners LLC and Aleafia Health we have been hired for a period of 180 days beginning January 1, 2021 and ending July 1, 2021 to publicly disseminate information about (AH) including on the Website and other media including Facebook and Twitter. We are being paid $15,000 cash payment. We own zero shares of (AH), which we purchased in the open market. We plan to sell the “ZERO” shares of (AH) 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 (AH) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.