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Chemesis International is a US Execution Story to be Watching

Oct 2, 2019 • 9:04 AM EDT
6 MIN READ  •  By mberger
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During the last year, we have seen increased interest in the US cannabis market from companies and investors. Going forward, we expect this trend to become more significant and have been highly focused on discovering leading US cannabis businesses that have been flying under the radar. 

Chemesis International Inc. (CSE: CSI) (OTC: CADMF) is a US cannabis business that we are excited about and believe that this is an opportunity to be watching. When compared to its peers, the company is trading at a considerable discount and we believe that Chemesis has significant growth prospects. Through a series of investments and acquisitions, the company has significantly enhanced its leverage to the US cannabis market and has been slowly increasing market share in burgeoning state markets 

2019 has already proven to be a banner year for Chemesis and we expect 2020 to be even more significant. From California to Puerto Rico, the company has attractive growth prospects and we believe that the market underappreciates this aspect of the story. Today, we have issued an update on Chemesis and this is an opportunity to put on your radar.

Enhances Leverage to the California Market

Last week, Chemesis reported a significant development after its subsidiary, GSRX Industries Inc. (GSRX), was granted state-wide manufacturing and distribution licenses for its facility in California. The facility will allow Chemesis to supply dispensaries with high-quality finished goods and we are bullish on the growth prospects associated with this market. 

Going forward, we expect to see Chemesis build on its position in California as the additional facility further increases the amount of manufacturing and distribution services that can be provided to the northern California market. Chemesis plans to concentrate its efforts on manufacturing and distribution services that are focused on the THC side of the business and we find this to be significant.

California is the world’s largest cannabis market and we are favorable on how Chemesis has been focused on this market. When looking at the California opportunity, we see a market with visible growth prospects and are favorable on the amount of distribution that is already in place. Chemesis will distribute finished goods to dispensaries including its Green Room dispensary, which is located near the new facility. 

We are favorable on the geographic position of these locations and expect to see Chemesis recognize significant synergies as a result of this. The facility provides local manufacturing in an effort to increase efficiencies and capacity while reducing lead times. The facility is currently under construction and is expected to be completed with final occupancy permits granted by the fourth quarter of 2019. 

Although the northern California market represents a massive opportunity and is home to over 15 million people, more companies have been focused on the opportunity in Southern California and Chemesis believes this market is currently underserviced and lacks high-quality manufacturing and products. The facility will allow Chemesis to establish operations and begin to build distribution, manufacturing and retail relationships with operating dispensaries in the Northern California market. We believe that the market underappreciates this aspect of the story and will monitor how the team is able to execute on this. 

GSRX Represents a High-Growth Cannabis Business 

This development was reported a few days after Chemesis released quarterly financial results for GSRX that showed impressive growth. When compared to the prior quarter, the company recorded a 20% increase in revenue and generated approx. $3.4 million of revenue during the period. When compared to the same period last year, revenues increased by more than 800% and we expect GSRX to continue to report strong growth on a going forward basis. 

Last month, Chemesis acquired a controlling interest in GSRX and we have been bullish on the growth prospects associated with this transaction. We believe that the companies will find significant synergies between each other and we are favorable on the sum of the parts of these businesses. 

GSRX’s operational results show significant revenue growth while being able to control expenses and we find this to be of major importance. Although many companies are unable to grow in a way that is sustainable (especially from a resources standpoint), GSRX has proven its ability to operate efficiently and we are favorable on this aspect of the story.

Much of the growth reported by GSRX can be attributed to the success of its retail business in Puerto Rico, California, Texas, and Tennessee. We are favorable on the markets that the company has been focused on as there is a lot of crossover with Chemesis and we find this to be significant. 

Currently, GSRX operates six dispensaries and two retail CBD stores, as well as five pre-qualified dispensaries in Puerto Rico that are in various stages of development. The company also has a dispensary in Palm Springs, California and we expect the California market to play a key role in the success of the operation. Over the next year, we expect to see Chemesis support GSRX and help fuel the expansion. We believe that this aspect of the story is not fully appreciated by the street and will monitor how the team continues to execute.

Has an Attractive Risk-Reward Profile 

Prior to releasing GSRX’s quarterly financial results, Chemesis published an operational update that highlighted each aspect of the business and we were favorable on this. When looking at the Chemesis opportunity, we see a business that has significant catalysts for growth. The company is highly levered to the Colombian cannabis market and we expect this aspect of the story to play a more important role in 2020 and beyond. 

During the last year, the Chemesis story has recorded several major advancements. From a management standpoint, the company has added strategic members to the team and we find this to be significant. Chemesis is led by a management team with a proven track record of success and one that is focused on creating value for shareholders. 

During the last few months, the cannabis sector has been under pressure and Chemesis has come well off its 2019 highs. Although the company has been laser focused on execution and has advanced the business in a number of ways, the shares have been under pressure and this has caught our attention. The recent weakness has created a great opportunity to learn about a business that is in the early innings of a major growth cycle and we will continue to closely monitor Chemesis. 

If you would like to learn more about Chemesis, please email support@technical420.com to be added to our distribution list.

 

Pursuant to an agreement between StoneBridge Partners LLC and Chemesis International we have been hired for a period of 365 days beginning July 15, 2018 and ending July 15, 2019 to publicly disseminate information about (CSI) including on the Website and other media including Facebook and Twitter. We are being paid $5,000 per month for a period of 3 months. We own zero shares of (CSI), which we purchased in the open market. We plan to sell the “ZERO” shares of (CSI) 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 (CSI) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information. This contract has been renewed for a period of 180 days beginning on August 2, 2019 and ending on February 2, 2020.

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Authored By

mberger

Michael Berger is the Founder of Technical420 and Managing Partner of StoneBridge Partners. Prior to entering the cannabis industry, Michael worked as an Equity Research Analyst at Raymond James Financial and recognized a major information void when it comes to the cannabis industry while working in this position. Michael continues to be one of the top authorities on cannabis equities in the industry.

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