The recent problems at CannTrust Holdings (TRST.TO) (CTST) has put significant pressure on the entire cannabis sector and Canadian Licensed Producers (LPs) have been hit especially hard during this time.
During the last quarter, Canadian LPs were under pressure and the issues at CannTrust only made things worse over the near-term. We believe that the recent decline is transitory and expect to see the cannabis sector come well off these lows over the next month. The recent decline has put a spotlight on Canadian LPs and we want to highlight an opportunity that has an attractive risk-reward profile
The company, Aleafia Health Inc. (ALEF.TO) (ALEAF) has been nothing short of an execution story and has been able to significantly advance its fundamental story through a series of transactions. When looking at the business, we are most excited about the outdoor cultivation opportunity and believe that the market does not associate much value with this aspect of the operation.
Completes Largest Cannabis Order to Date
Last week, Aleafia announced that its wholly owned subsidiary, Emblem Cannabis Corporation, has completed the largest adult-use cannabis order in the Company’s history. The value of the Order is expected to generate proceeds from the sale of cannabis exceeding $1.0 million and has been shipped to a Canadian provincial government for distribution to online and retail consumers. The single Order features all of the Company’s product formats and 17 individual product SKUs.
Aleafia Health’s average monthly gross revenue generated from the sale of cannabis now consistently and significantly exceeds equivalent revenues generated during Aleafia Health’s entire 2018 annual reporting period.
Aleafia Health: A Leading Outdoor Operator
When it comes to the outdoor cultivation opportunity, Aleafia Health has been focused on this aspect of the business for a while and has been executing on a strategy to capitalize on it. Last month, Aleafia Health was granted approval from Health Canada for an outdoor cannabis cultivation facility. The company was well prepared for this approval and had already dedicated growing rooms for the propagation of starter clones with strains that are particularly well-suited to outdoor cultivation.
Over the next year, we expect the outdoor cultivation opportunity to become a major aspect of the business and find this to be significant. We believe that this initiative represents a major potential growth driver for Aleafia Health due to the economics associated with the operation. The company plans to transport the cannabis grown at the outdoor facility to its processing facility for the production of high-margin, value-added cannabis products.
Besides for the economics associated with the outdoor operation and the post-harvest plans, we are also bullish on the outdoor opportunity due to the size 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 sq. ft. of outdoor cultivation space.
Earlier this month, Aleafia Health was granted multiple export permits from Health Canada which will allow the company to start shipping cannabis to international markets. Starting with Australia, the international represents massive long-term opportunity and we will be monitoring how the company is able to execute on its global growth strategy.
One of the reasons we are favorable on the international cannabis opportunity is due to the level of saturation in these markets. The international cannabis market represents an emerging opportunity that is not saturated. When compared to a market like Canada, the cost of cannabis in international markets at the consumer level is significantly higher and this is something that we are bullish on.
Following this approval, Aleafia Health will be able to start selling high-margin, value-added cannabis products across international borders and we believe that this is just the start of something big. Going forward, we expect the cannabis from Aleafia Health’s outdoor operation to play a key role when it comes to the international opportunity and will monitor how these two aspects of the business help to create value to each other.
A Fully Funded Growth Story
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. We are favorable on the way that this capital raise has strengthened the balance sheet and expect to see this capital put to work in way that is accretive to the business.
One of the reasons we are excited about Aleafia Health is due to the focus on increasing production capacity. The company 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. Aleafia Health will be generating massive revenues once it is operating at full capacity and we believe that the market does not fully appreciate this.
Aleafia Health is led by a management team that has had its finger on the pulse of the cannabis industry and we find this to be a significant aspect of the story. The management team has been focused on capitalizing on attractive verticals of the cannabis industry and we are favorable on how the business is positioned for future growth.
When compared to its peers and Canadian LPs with a similar scale, Aleafia Health is trading at a significant discount and this is an opportunity that we are watching closely. To learn more about this emerging Canadian LP, please reach out to firstname.lastname@example.org.
Pursuant to an agreement between StoneBridge Partners LLC and Aleafia Health Inc. (ALEF) we have been hired for a period of 180 days beginning February 1, 2019 and ending August 1, 2019 to publicly disseminate information about (ALEF) including on the Website and other media including Facebook and Twitter. We are being paid $7,500 per month (ALEF) for or were paid “ZERO” shares of unrestricted or restricted common shares. We own zero shares of (ALEF), which we purchased in the open market. We plan to sell the “ZERO” shares of (ALEF) 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 (ALEF) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.