The US cannabis market is one of the most exciting cannabis trends to be following and this is an opportunity that investors need to be monitoring. The US cannabis industry is in the early innings of a multi-decade growth cycle and the recent developments on the state-level have been encouraging.
During the last year, there has been a major transition in the cannabis sector where investors have been taking capital out of Canada and placing it in the US. From an investment perspective, we are of the opinion that the US market is similar to where the Canadian cannabis industry was approx. two years ago and find that to be significant.
Although the valuations associated with US cannabis companies has significantly increased, the opportunity that they have when compared to Canada from a population standpoint is significantly larger. For this reason, we believe that the US market still has massive upside and want to highlight a company that has been focused on this opportunity.
The company, Chemesis International Inc. (CSE: CSI) (OTC: CADMF) (FRA: CWAA) is in the middle of a massive expansion that is taking place on two continents. Chemesis is capitalizing on the opportunity in the United States as well as in Colombia and has been nothing short of an execution story when it comes to this market.
While we are excited about Chemesis’ opportunity when it comes to the Colombia cannabis market, we want to focus on its leverage to burgeoning markets in the US as well as the growth prospects associated with it. Currently, the company has operations in California and Puerto Rico, and is targeting several new emerging cannabis markets as part of its expansion.
A US Expansion Story
In late April, Chemesis International reported to have started the process to expand its operations into additional emerging cannabis markets in the United States. We are not surprised by this development after the company was able to successfully create a presence in the California market, which is one of the competitive markets in the cannabis sector.
Chemesis plans to concentrate on the Midwest region by establishing operations in Michigan, Wisconsin, Missouri, and Illinois. When compared to the East coast, the Midwest is less saturated, and we are bullish on these cannabis opportunities in these markets. Currently, the company is in the application stage in each state and is also in the process of completing due diligence on assets (i.e. cultivation, extraction, and distribution) in these markets. This represents a massive opportunity for Chemesis to expand into additional emerging cannabis markets in the US and we will monitor how the team is able to execute on this.
When looking at the markets that Chemesis plans on expanding into, we are most excited about the existing opportunity in Michigan. The state has passed both recreational and medical cannabis laws, and regulators are in the process of forming recreational cannabis laws. In early 2020, recreational cannabis sales are expected to commence, and this should line up well with Chemesis’ timeframe for execution.
In Michigan, Chemesis has applied for a hemp co-processing license, hemp cultivation license, Medical Cannabis processing license, and will apply for a recreational cannabis processing license in the fourth quarter of 2019. We are favorable on the steps that the company has taken to form a position in this market and will monitor how the management team is able to execute on this opportunity.
Illinois is another emerging cannabis market that we find to be exciting and will be monitoring how the company is able to penetrate this market. Illinois is developing a medical cannabis program, which allows patients that qualify for certain medical conditions to obtain cannabis flower and derivatives. Chemesis will apply for licenses when the state begins accepting applications and is currently evaluating assets and other opportunities in the state.
When it comes Wisconsin and Missouri, these are markets that are less exciting over the near-term but are still opportunities to be watching. Chemesis wants to have a first mover advantage in Wisconsin, where the state is in the early stages of forming a basis for legalization and we will be monitoring how the company executes on this. In Missouri, the near-term opportunity is more significant as the state is in the process of shaping a framework of regulations for a medical cannabis program. Chemesis is in the process of applying for the medical processing and cultivation license in Missouri and this is an opportunity we are watching.
The cannabis opportunity in the United States is massive and this is a market that we are bullish on. After Chemesis establishes operations in the Midwest, we expect to see the company expand its focus to the East coast and will monitor how the team is able to execute. When looking at the size of the United States cannabis market, it makes sense for Chemesis to continue to expand its reach, especially after it was able to successfully establish leading cannabis brands in some of the most important markets in the United States.
When it comes to the opportunity in the US, California is the first market to come to our mind. This is a market that Chemesis has been laser focused on and we are very excited about this opportunity. In late April, the company completed the previously announced acquisition of a fully-operational extraction and manufacturing facility in Cathedral City, California. This represented a major milestone as the facility will expand the company’s processing ability in California to over 500,000 kilograms of cannabis per year.
The operational and revenue generating facility is fully licensed and is expected to further enhance the company’s ability to extract THC, CBD and other cannabinoid and terpene products. California’s cannabis concentrate market represents a massive opportunity and we are bullish on the leverage that Chemesis’ has to it. Over the next year, we expect this facility to prove to be a major value driver for the overall business and we will continue to monitor this.
At the time of the closing of this acquisition, Chemesis also announced a binding agreement to increase its ownership interest in its flagship manufacturing facility pursuant to which it will acquire the remaining minority 20% interest that it does not currently own. The facility is also located in Cathedral City, is fully operational, compliant with all regulations, and is generating significant revenues.
With these transactions, Chemesis will be able to provide additional third party manufacturing for brands that are in need of high-quality cannabis concentrates. The company will also be able to service its own brands (Jay & Silent Bob’s Private Stash and California Sap) through these facilities and we are favorable on this development. Through its Desert Zen facility, the company also offers distribution and transportation services to cannabis brands which increases efficiency and reduces wait times for companies.
Chemesis International Inc. Receives Three Additional Cultivation Licenses
Late last week Chemesis announced that it had received three additional cultivations licenses for three additional properties in Colombia. We are bullish on this development as it expands Chemesis’s footprint in the region and will bring on greater cultivation capacity in the near future.
Currently, the Company has 5 acres planted for its pilot spring harvest and has the ability to expand to over 100 acres once the initial harvest is complete. These new acres, to be planted soon, not only will be focused on producing biomass but will also contribute in expediting the expansion of La Finca`s seed stock, a crucial step in guaranteeing acreage growth is in sync with seed availability.
The Company has also established a non-profit organization with the sole purpose of promoting cannabis cultivation. The Association for the Promotion of Cannabis Cultivation offers a new agricultural model with focus on the inclusion of farming communities such as indigenous, afro-Colombians, agroindustries and other small farmers with technical advice, seed, and a crop purchasing program.
The Association has joined forces with Ricardo Garzon, one of Latin America’s leading experts in the implementation of sustainable projects. Mr. Garzon has worked for several major organizations including the International Development Bank, USAID, The World Bank, the International Finance Corporation and is a recognized expert in the development and structuring of associative models throughout Latin America. The proposed model will be presented to Colombian communities and will allow La Finca to extend its sowing prospects to add an additional 2,000+ farming families and over 10,000 acres within the next three years to its previously announced land package. The Company believes this puts La Finca on the frontline of the transformation of agriculture in Colombia.
Recording Stronger than Expected Demand in Puerto Rico
Earlier this month, Chemesis provided an update in regards to its operations in Puerto Rico and we found this to be significant. The company reported to have increased its Puerto Rico cultivation and manufacturing operations after seeing a significant increase in demand for cannabis on the island. Chemesis via Natural Ventures has the ability to produce more than 9,000 pounds of cannabis per year. Once the expansion is complete, the company will be able to produce approx. 30,000 pounds per year and this is something to be monitoring.
Over the next year, we expect the Puerto Rico asset to become a more significant value driver for the overall business. Through a strategic relationship with VividGro, Chemesis will receive the state-of-the-art LED lighting systems and environmental controls. VividGro is a leader in agricultural technology for consumer and commercial applications and we find this relationship to be significant. In addition to the lighting technology, VividGro will also provide the necessary support in all aspects of the build out and this partnership should allow Chemesis to reduce its overhead costs, while increasing production, and maintaining quality.
In Puerto Rico, Natural Ventures has been recording significant demand for its branded products as well as its white label products. Natural Ventures will expand its capacity with large scale perpetual cycle which will result in significantly higher production as well as more consistency when it comes to adding consistent monthly outputs. This will allow Chemesis to realize a stronger return-on-investment for its shareholders and we will keep an eye on this aspect of the business. Due to this, Chemesis continues to concentrate its efforts on expanding its cultivation and manufacturing capabilities in this market and we are bullish on this.
A Company to be Watching
Although Chemesis has been able to significantly advanced its fundamental story through a series of organic and inorganic growth initiatives, the shares have come under pressure and have traded lower with the rest of the cannabis sector. This pullback creates a great opportunity for investors to take a look at the North and South American focused cannabis company and we will continue to closely monitor this operation.
Over the next year, we expect Chemesis to record massive growth and are favorable on the leverage to several burgeoning cannabis markets in the United States. The company has benefited from being able to use its stock as a currency to make acquisitions and we expect to see more transactions like this over the coming months. Chemesis is in the middle of a major expansion and we believe that the market underappreciates the growth prospects associated with it.
We are of the opinion that Chemesis is a multi-faceted growth opportunity with leverage to some of the most exciting cannabis markets. The company has been laser focused on the cannabis oil opportunity and we very bullish on this market. During the last year, we have seen a massive increase in the demand for cannabis oil and this is trend that we expect to continue in the years ahead. Chemesis has significant leverage to this market in California and we expect to see the company replicate its focus in the new markets that it enters.
One of the reasons why we are confident in Chemesis’ ability to execute is due to the strength of its management team and its balance sheet. The company is well capitalized and well positioned to execute on its previously announced growth initiatives.
To learn more about how Chemesis International is capitalizing on the US cannabis opportunity, please contact email@example.com.
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