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Aleafia Health Is Positioned For Significant Growth In 2019

Jan 30, 2019 • 12:50 PM GMT+0000
Aleafia Health.png
5 MIN READ  •  By Michael Berger
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The cannabis industry is one of the most attractive growth markets for investors and such opportunities only appear once in a lifetime. During the last year, the cannabis industry recorded significant growth, and this is a trend that we expect to continue for years to come.

In 2014, we started closely covering the cannabis sector and have since been monitoring the opportunities available to investors. When it comes to investing in the cannabis industry, we are looking for companies with leading management teams, attractive valuations, and significant growth prospects.  

One company that meets this criteria is Aleafia (ALEF.V) (ALEAF) and today, we have issued an update on this Canadian cannabis producer. Aleafia has been in the middle of a major expansion and has been executing flawlessly. During the last year, the company significantly advanced its fundamental story through organic and inorganic growth initiatives and we are favorable on its position in the cannabis market. From acquisitions to strategic partnerships, the company has been laser focused on expanding its reach and increasing market share.  

We have been closely following Aleafia and will be monitoring how the management team executes from here. The company has massive growth prospects and is trading at a very attractive valuation when compared to its peers. We think this is an important aspect of the story and investors should be keeping Aleafia on their radar.

Relationship with CannTrust is Generating Significant Revenue

In January, Aleafia Health recorded a significant milestone and sold two cannabis crops to CannTrust Holdings Inc. (TRST.TO) (CNTTF), representing the first transactions under the previously announced 15,000 kg cannabis supply agreement. CannTrust is a leading Canadian cannabis producer and represents a strategic partner for Aleafia.

The two crops purchased by CannTrust will supplement the company’s offering of high-quality cannabis for its growing medical patient base, which now includes more than 58,000 registered customers. The cannabis crops will also be used to support CannTrust’s four recreational brands and we think the relationship between the cannabis producers is the start of something much greater.

Aleafia is in the middle of a major expansion and expects to significantly increase its cannabis production capacity over the course of 2019. The company recently completed Phase I construction of its Niagara Greenhouse facility, bringing it to a grow-ready state (pending Health Canada approval). The cannabis that was sold to CannTrust came from Aleafia’s indoor Port Perry cultivation facility and the company has been laser focused on increasing production capacity.

Aleafia’s Acquisition of Emblem Creates a Cannabis Leader

In December, Aleafia reported a major development and announced that it would acquire Emblem Inc. (EMC.V) (EMMBF), a Canadian cannabis producer. Emblem represents a multi-faceted growth opportunity and we expect this acquisition to quickly prove to be accretive.

Emblem is comprised of three distinct divisions which can create value for each other as well as improve the value proposition of the entire company. Its three divisions are focused on cannabis production through Emblem Cannabis, patient education through GrowWise Health, and pharmaceutical production through Emblem Pharmaceuticals.

We think that there are significant synergies between Aleafia and Emblem and will monitor how the team executes on this. The combined company will have a significantly larger reach and will be much better capitalized with more than $70 million in cash. Through this acquisition, Aleafia will be able to leverage Emblem’s extraction, and product innovation to sell high-margin medical cannabis directly to Aleafia’s patient base for the first time. Aleafia’s patient base will have access to Emblem’s differentiated, high margin derivative products including capsules, oils and oral sprays, with among industry leading recognized revenue per gram rates.

The growth prospects of the combined company are significant, and we think the market underappreciates this aspect of the story. The proposed acquisition creates a new Canadian medical cannabis leader that will operate the country’s largest national clinic network and will have improved operational scale with planned annual capacity of approximately 138,000 kg (including committed supply agreements), Canadian and expanded global distribution, and a robust branding and product development platform.

Aleafia expects to expand its reach by leveraging Emblem’s Provincial agreements with Ontario, Saskatchewan, British Columbia and Alberta to expand its reach and sell more products. The company also plans to gain national medical distribution through Emblem’s agreement with Shoppers Drug Mart and gain national retail distribution through Fire & Flower, Starbuds and the emerging OnePlant network. Through the acquisition, Aleafia intends to capitalize on high growth opportunities and leverage international expansion across four verticals: Cannabis Production, Health and Wellness, Cannabis Education and the Consumer Experience.

Last year, Aleafia acquired Canabo Medical Clinic and when you combine this with Emblem’s GrowWise Health subsidiary, you have a leading Canadian clinic network with access to 40 national medical clinics and education centers that have served almost 60,000 patients. This is an important aspect of the story and we expect these assets to help support growth at the medical level.

This acquisition significantly improves Aleafia’s position in the international cannabis market. The company will benefit from Emblem’s previously announced joint venture with German pharmaceutical wholesaler Acnos Pharma GmbH. Aleafia expects to use this relationship to access the world’s largest medical cannabis market serving more than 82 million people, with access to approximately 20,000 pharmacies.

A Company with Significant Catalysts for Growth

When we look at Aleafia, we are excited by the company’s growth prospects and believe that this is a stock to watch. The company is led by a management team with a proven track record of success and this is an important aspect of the story.

Aleafia has significant catalysts for growth and we think the acquisition of Emblem will prove to be a game-changer for the company. The acquisition will support the company’s relationship with CannTrust and will provide attractive leverage to the European cannabis market via Germany. There are countless synergies that can be recognized through this acquisition and this is something that investors need to be monitoring. 

When compared to peers of a similar scale, Aleafia is undervalued and we are monitoring price movements. Although the shares have come well off its recent lows, Aleafia has come well off its 2018 highs and this is something we are watching.

To learn more about Aleafia and to stay up to date with this opportunity, please email support@technical420.com.

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Authored By

Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners, LLC and Founder of Technical420.com. Prior to entering the cannabis industry, Michael was an Equity Research Analyst at Raymond James Financial covering the Energy Sector. Michael has been featured in publications such as The Street, Bloomberg, US Money News, and hosts various cannabis events across North America.

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