Although 2022 has been a challenging year for the global cannabis industry, we believe the weakness has created a great opportunity to invest in operators which are undervalued and have visible growth prospects.
When we analyze a North American cannabis business, we look for operators that meet the following criteria:
- Led by a management team with a proven track record of execution
- Operates a business that is generating positive cash flow or positive adjusted EBITDA
- Has potential event-driven catalysts and represents a differentiated opportunity
- Is well capitalized and has the resources that are needed to capture additional market share
- Is trading at a valuation that offers considerable upside potential (when analyzed on basic operating and profitability metrics)
There are only a few months left in the year and we are working to identify North American cannabis businesses that possess these traits and are flying under the radar. Today, we want to highlight a Canadian cannabis company that is well positioned to record strong growth in 2023 and beyond.
The company, Cannara Biotech Inc. (TSX Venture: LOVE) (OTCQB: LOVFF) (FRA: 8CB), is a Canadian Licensed Producer (LP) which meets our criteria and we believe the business has a favorable risk-reward profile.
The vertically integrated Canadian cannabis company has more than 1.6 million square feet of production capacity and is the third largest Canadian LP (based on production asset square footage). During the last year, Cannara has reported a series of positive developments and we are bullish on the growth trajectory of the business.
From strengthening the balance sheet to forming strategic partnerships, the management team is focused on creating value for shareholders and we want our readers to understand why we are excited about the opportunity. We consider Cannara to be a differentiated growth opportunity due to the following:
- Scalable Growth – Cannara acquired a state-of-the-art facility for a fraction of the amount it cost to construct and the management team is executing on a calculated multi-stage expansion strategy
- Elite Product Portfolio – From having a strategic partnership with Exotic Genetix (a 50-time award-winning US cannabis breeder) to developing new high-demand products, Cannara has launched several high-demand products which are capturing market share in provinces across Canada
- Profitable – Cannara Biotech has recorded positive adjusted EBITDA for five consecutive quarters and we consider this trend to be a core pillar of the story. The trend is a testament to the strength of the management team and its focus on creating value for shareholders
An Underappreciated Growth Story
Cannara currently sells cannabis in Ontario and in Quebec (2 of the 4 largest Canadian provincial markets) as well as Saskatchewan. After receiving approval to become a licensed vendor to the British Columbia Cannabis Store (BCBS), the business’ growth profile has further improved.
As of October, Cannara will also be listed in the province of British Columbia and expects to receive listings in Alberta soon. Once the company establishes a presence in these markets, the business should be able to capture market share in the four largest Canadian markets. Since the market has not yet assigned much value to the company’s larger footprint, we consider this to be an undervalued part of the business.
Based on Cannara’s production footprint, the Canadian cannabis company could produce up to 125,000 kilograms of high-quality cannabis per year. We believe the management team is taking the right strategy when it comes to increasing production capacity and want our readers to be aware of this aspect of the story.
While many Canadian LPs scaled too large and too fast, Cannara benefited from having taken a patient approach toward growth. As most of the company’s peers are closing facilities and writing off assets, the business is benefiting from the management team’s calculated growth strategy and we are bullish on the potential revenue that can be generated by the business.
A Fundamentally Strong Cannabis Business
During the last few quarters, Cannara has evolved into one of the fastest growing indoor cannabis cultivators and has been capturing significant market share in Quebec. At current levels, we believe the market is undervaluing the value associated with Cannara’s expansion strategy and consider this to be an important pillar of the opportunity.
Another important pillar of the opportunity is the balance sheet. During the last year, Cannara has been focused on strengthening its balance sheet and we are favorable on the amount of resources the business has to scale operations.
A few months ago, Cannara closing a non-dilutive $50 million credit facility which was led by BMO Commercial Banking. We consider the terms of the credit facility to be favorable and will monitor how the management team uses the capital to create more value for shareholders.
We believe the management team’s decision to buy a facility in Quebec was strategic for several reasons. First, the facilities owned by the company are located in the same province. Second, the company will receive favorable labor and electricity pricing because of where the facility is located. As a result, the Canadian cannabis company can lower two of the largest cost input factors in cannabis cultivation and we consider this to be an underappreciated aspect of the story.
Trading for a Discount When Compared to its Peers
At current levels, Cannara is valued at less than C$100 million (based on market capitalization) and we believe the market is not assigning value to many important verticals of the business. With approx. $30 million of trailing 12 month revenue, we find the company’s risk-reward profile to be favorable and believe the business has clear catalysts for growth.
When comparing the business on a year-over-year basis, we consider the production run rate to be one of the most important metrics. On a comparative basis, this amount has almost doubled when compared to 2021 and we believe this provides clarity to the level of revenue that can be generated by the business.
Over the next year, we expect Cannara to increase production capacity, capture more market share of the global cannabis sector, and bring more cannabis products to market. We are of the opinion that Cannara has the resources needed to scale the business and are favorable on the management team’s calculated growth strategy.
As Cannara continues to execute on high-profile growth initiatives, we expect the business to receive additional coverage from broker-dealers. Once this starts to happen, overall investor interest should steadily increase and we want our readers to be aware of this possibility before it happens.
If you are interested in learning more about Cannara Biotech, please send an email to email@example.com with the subject “Cannara Biotech” to be added to our distribution list.
Company Relationship Disclosure
T420 is responsible for the T420 opinions provided in this disclosure except all sources or information provided by other parties were not verified or authenticated and T420 does not undertake to confirm or substantiate or be responsible for such information provided by other parties.
Any Content posted regarding a Profiled Issuer is not a solicitation or recommendation to buy, sell or hold securities. We cannot and do not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. All information should be independently verified. We are not responsible for errors or omissions in our publications, and any opinions expressed are subject to change, without notice. We do not, nor are we under any obligation to undertake due diligence or investigation or authenticate and verify whatsoever regarding Profiled Issuers or any Content posted in relation thereto and we do not receive any verification from the Profiled Issuer regarding the Content we disseminate. Similarly, while we endeavor to facilitate the provision of quality information, we are not responsible for any loss or damages caused or alleged to have been caused by its use nor verify or authenticate or update such information.
Pursuant to an agreement between StoneBridge Partners LLC and Cannara Biotech (LOVE) we have been hired for a period of 90 days beginning October 1, 2022 and ending January 1, 2023 to publicly disseminate information about Cannara Biotech including on the Website and other media including Facebook and Twitter. We are being paid $3,000 per month by Cannara Biotech and were paid “ZERO” shares of unrestricted or restricted common shares. We plan to sell the “ZERO” shares of Cannara Biotech 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 Cannara Biotech in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.
This article contains forward-looking statements within the meaning of applicable securities laws. All statements that are not historical facts, including without limitation, statements regarding future estimates, plans, programs, forecasts, projections, objectives, assumptions, expectations or beliefs regarding future performance are “forward-looking statements”. Forward-looking statements can be identified by the use of words such as “expects”, “does not expect”, “is expected”, “believes”, “intends”, “anticipates”, “does not anticipate”, “believes” or variations of these words, expressions or statements, that certain actions, events or results “may”, “could”, “would”, “might” or “will be” taken, will occur or will be realized. Such forward-looking statements involve risks, uncertainties and other known and unknown factors that could cause actual results, events or developments to differ materially from the results, events or developments expected and expressed or implied in such forward-looking statements. These risks and uncertainties include, but are not limited to, dependence on obtaining and maintaining regulatory approvals, including the acquisition and renewal of federal, provincial, state, municipal, local or other licenses, and any inability to obtain all necessary government authorizations, licenses and permits to operate and expand the Company’s facilities; regulatory or policy changes such as changes in applicable laws and regulations, including federal, state and provincial legalization, due to fluctuations in public opinion, industry perception of integrative mental health, including the use of psychedelic-assisted therapy, delays or inefficiencies or any other reason; any other factor or development likely to hamper the growth of the market; the Company’s limited operating and profitability track record; dependence on management; the Company’s need for additional financing and the effects of financial market conditions and other factors on the availability of capital; competition, including that of more established and better funded competitors; the impact of the Russia-Ukraine conflict on the global economy; the continued impact of the COVID-19 pandemic; and the need to build and maintain alliances and partnerships, including with research and development companies, customers and suppliers. These factors should be carefully considered, and readers are cautioned not to place undue reliance on forward-looking statements. Despite the Company’s efforts to identify the main risk factors that could cause actual measures, events or results to differ materially from those described in forward-looking statements, other risk factors may cause measures, events or developments to materially differ from those anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in forward-looking statements. The Company does not undertake to revise forward-looking statements, even if new information becomes available as a result of future events, new facts or any other reason, except as required by applicable laws.