Last week, Australis Capital Inc. (CSE: AUSA) (OTC: AUSAF) released a corporate update and we are favorable on how the story has advanced so far this year.
We recently identified Australis as an emerging US cannabis company that is executing on a capital light expansion strategy. Through the (part) ownership of ALPS and Green Therapeutics (GT), the company is well positioned to capitalize on the US cannabis market, and we are favorable on how the management team has positioned the platform for continued growth.
After New York legalized recreational cannabis, Australis made this market a priority and is in discussions with several potential partners with a variety of partnership models. According to Forbes, the legal cannabis industry in New York State is expected to capture $1.2 billion in sales by 2023 and $4.2 billion.
Focused on Executing on an East Coast Expansion Strategy
As part of a northeastern US growth strategy (New York, New Jersey, Pennsylvania, Michigan, others), Australis is putting together a team of operators, license application specialists and influencers, who have a proven track record of success in the cannabis industry. By assembling a best-in-class team, the company is positioning itself to capitalize on emerging US markets and we are favorable on this aspect of the story.
More than eight months ago, the Australis management team started to discuss the east coast cannabis market and we are favorable on the amount of work this went into the development of a multi-faceted growth strategy. The company now plans to now accelerate the discussions that it has been having to determine the best opportunities to strengthen its applications and negotiations. The planned additions to the team are expected to substantially strengthen Australis’ execution ability in these new markets and we will monitor this aspect of the story.
In the corporate update, Australis CFO Jon Paul provided positive guidance and stated that revenues are expected to more than double for the fiscal year that ended on March 31st. We find this to be impressive since ALPS only contributed approx. three weeks within that period. Going forward, numbers are expected to record incremental growth as ALPS executes on current projects as well as an expanding pipeline of new projects that are expected to be signed
In the near future, Australis’ balance sheet is expected to strengthen from the sale of land that is owned by Green Therapeutics. The transaction is expected to close shortly and should add approximately C$2.5 million of cash to the company’s working capital position.
Before entering a new market, Australis plans to analyze the market opportunity, regulatory framework, population size, and the cost of doing business. Beyond New York and New Jersey, the company is targeting Illinois, Massachusetts, Michigan, Pennsylvania, and Florida. Australis will continue to expand through a capital light model and will assess each market on its accretive merits.
ALPS is Working on Massive Cannabis Projects
In the corporate update, Australis announced that ALPS has signed a contract with Sigg, a Finland based nursery that supplies 8 million plants per year to tomato and cucumber growers, for the provision of its APIS maintenance offering. Based on a computerized maintenance management system (CMMS), Sigg will utilize the new services module, which is proven to deliver significant operational costs savings.
Australis has been reporting increasing interest in its APIS CMMS offering in both cannabis and traditional horticultural industries. Through APIS, Australis can de-risk the cultivation process and prevent issues from occurring. The platform reduces costs and delivers significant economic benefits to customers while generating a high-margin recurring revenue stream for the business.
Currently, ALPS is executing as the design, engineering and construction management consultancy on projects with a total capex value that is close to $1 billion. ALPS’ potential pipeline of projects continues to grow and is currently reflecting projects that have a total additional capex value of approx. $4 billion. The size of the projects that ALPS is working and negotiating on is a reflection of their leadership in designing cultivation facilities in both the cannabis and sustainable horticulture industries. Please note, these are not the revenues accruing to ALPS who are the design and construction management firm, but it provides a good indication of the size of the opportunity and the standing of ALPS as a leader in Controlled Environment Agriculture.
GT is Executing on Major Growth Initiatives
GT is an attractive part of the Australis story and recently signed a management agreement with a Nevada based cultivator and producer of premium cannabis products. Under the agreement, GT will operate the partner’s cultivation facility, with products sold under GT brands. In consideration, GT will receive a royalty on all products sold and we are favorable on the potential revenue that can be generated through this.
Currently, GT is working on closing an agreement with another cannabis operator and we are favorable on the potential revenue that can be generated through it. As part of the agreement, GT will receive biomass in return for operating the facility and this deal falls in line with Australis’ capital light expansion strategy. AUSA’s ability to execute on this capital light strategy is a reflection of the quality of the team and assets the Company has assembled.
GT is also in the final stages of completing the acquisition of a 23-acre plot of land in Nevada where it intends to build a nexus for cannabis operators in this state. The intention is for ALPS to help develop facilities for third party operators, while securing access to a steady supply of competitively priced biomass to fuel the further scale up of GT’s brands in Nevada.
Another attractive part of the GT story is related to the process of launching new product categories in Nevada and other jurisdictions such as Oklahoma and Missouri. The categories include water soluble tinctures and edibles lines and are expected to launch in the coming months.
A Cost-Effective Growth Story that is Trading at a Discount
During the last quarter, Australis announced a series of positive developments and we are bullish on how the fundamental story has improved. The company has executed on a series of organic and inorganic growth projects and we are favorable on the amount of revenues that can be generated through these initiatives.
At current levels, Australis is trading at a considerable discount to other multi-state-operators and we find the risk-reward profile to be favorable. As the company continues to execute on a capital light growth strategy, we expect to see an improvement in sentiment and believe the market is missing out on something significant.
So far this year, Australis has made several strategic additions to the leadership team and we are favorable on the track record that is associated with these additions. We expect the strength of the management team to play an important role in the growth of the business and this is an operator that we are excited about.
If you are interested in learning more about how Australis plans to execute on a capital light expansion strategy, please send an email to email@example.com with the subject “Australis” to be added to our distribution list.
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Pursuant to an agreement between StoneBridge Partners LLC and Australis Capital Inc. we have been hired for a period of 180 days beginning February 8, 2020 and ending August 8, 2021 to publicly disseminate information about (AUSA) including on the Website and other media including Facebook and Twitter. We are being paid $6,000 per month (AUSA) for or were paid “ZERO” shares of unrestricted or restricted common shares. We plan to sell the “ZERO” shares of (AUSA) 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 (AUSA) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.