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Aleafia Health Is Leveraging Outdoor Cultivation To Drive International Growth

Jul 22, 2019 • 7:23 PM EDT
5 MIN READ  •  By Michael Berger
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One of the most exciting trends that we are seeing in the cannabis industry is related to the emergence of the international cannabis opportunity. During the last few years, several major international cannabis markets have opened, and this trend is rapidly gaining traction in additional countries across the globe.

Download Our Report Covering 5 Canadian Licensed Producers Tapping Outdoor Cultivation

Canada has been the greatest beneficiary of the export opportunity to these international cannabis markets and this a result of the country having a first-mover advantage. Over the next year, we expect the international cannabis opportunity to become even more significant and this is trend that investors need to be aware of.

During the last year, we have been highly focused on the Canadian Licensed Producers (LPs) that have exposure to emerging international cannabis markets and want to highlight a company that has be quietly creating a significant international cannabis platform.

Aleafia Health: An International Growth Story

The company, Aleafia Health (ALEF.TO) (ALEAF) has been laser focused on the international cannabis opportunity and has attractive leverage to this vertical through its acquisition of Emblem. We are bullish on the growth prospects of the combined company and expect Aleafia Health to recognize massive synergies over the next year.

Earlier this month, Aleafia Health reported a major milestone and was granted multiple export permits from Health Canada which will allow the company to start shipping cannabis to international markets. We expect the international side of the business to become a major revenue driver for Aleafia Health and this is an initiative we will be closely following.

Over the next month, Aleafia Health expects to ship its branded medical cannabis oils and these products will be distributed by Australian Licensed Producer CannaPacific. This was a strategic decision for Aleafia Health since it owns 10% of CannaPacific and we find this to be significant. A few months ago, the company expanded on its relationship with the Australian Licensed Producer following the closing of CannaPacific’s acquisition of a 108,000 sq. ft. greenhouse facility that will be used for cannabis cultivation and for the eventual sale to medical patients and global exports.

We expect to see the investment made by Aleafia Health start paying dividends in the near future as operations ramp up and as CannaPacific starts to sell cannabis products to its patient base. The Australian Government’s Department of Health has already granted Aleafia Health the necessary import permits and the export permit issued by Health Canada specifically allows for the export of company branded medical cannabis oils, including drops and sprays.

For the first time, Aleafia Health will be able to sell high-margin, value-added cannabis products across international borders and we believe that this is just the start of something big. The acquisition of Emblem has had a significant impact on the company’s leverage to the international cannabis opportunity as it provided access to the German medical cannabis market through a joint venture with pharmaceutical wholesaler Acnos Pharma GmbH.

The German medical cannabis market has been gaining significant traction and several leading Canadian LPs are focused on this opportunity. Through the joint venture with Acnos, Aleafia Health has the potential to expand into new markets across Europe and we are bullish on the growth prospects associated with this relationship. With a population that is more than twice the size of the US and Canada combined, the European cannabis market represents an attractive opportunity and we will continue to monitor how the team executes from here.

Expect the Outdoor Operation to Support International Growth

One of the reasons we are excited about Aleafia Health is related to what it has accomplished when it comes to the outdoor cannabis cultivation opportunity. Last month, Aleafia Health recorded a major milestone and was granted approval by Health Canada for an outdoor cannabis cultivation facility. The company was well prepared for this development and had already dedicated growing rooms at its Paris Indoor Grow Facility to propagate starter clones with strains that are particularly well-suited to outdoor cultivation.

Aleafia Health is one of the few companies to be executing on the outdoor cultivation opportunity and we find this to be significant. We believe that this initiative represents a major potential growth driver due to the economics associated with the operation. The company plans to transport the cannabis grown at the outdoor facility to its Paris processing facility for the production of high-margin, value-added cannabis products and we would not be surprised if Aleafia Health decided to export these products to its partner in Australia.

Another reason for us being excited about the outdoor cultivation opportunity is due to the scale of the operation. The initial license allowed for the cultivation of cannabis in Zone 1 of the facility which represents approx. 292,000 sq. ft. of space, and earlier this month Aleafia obtained its full licensing from Health Canada for all 1.1 million SF of outdoor cultivation space.

Aleafia Health is Positioned to Record Significant Growth

 

Over the next year, we expect to see Aleafia Health record substantial growth as its domestic and international operations continue to ramp up. Another reason that leaves us confident in the company’s potential growth is due to the existing distribution in place. Aleafia Health has distribution relationships across four provincial providers (Ontario, Saskatchewan, British Columbia and Alberta), three independent retailers (Fire & Flower, Starbuds, and OnePlant), and Shoppers Drug Mart. We are bullish on this aspect of the story and find these relationships and distribution outlets to be significant.

 

Earlier this month, the Canadian cannabis producer raised more than $40 million through a public offering and this capital will solidify and accelerate the expansion of the company’s cannabis health and wellness ecosystem, in Canada, and abroad. Aleafia Health is in the middle of a major expansion and expects to reach an annual production capacity of 138,000 kg of dried flower across indoor, greenhouse, outdoor and strategic supply agreements, as well as an extraction capacity of 50,000 kg. We are bullish on the amount of revenue that can be generated once the company is operating at full capacity and this is an opportunity to be watching.

 

Only a few months ago, Aleafia Health received a positive upgrade from Eight Capital which issued the company a Buy rating and a $3 price target. As the company continues to execute, we expect to see more broker-dealers start covering the story and we will be monitoring this. If you want to learn more about Aleafia Health, please contact support@technical420.com.

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Authored By

Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.

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