The landscape of the legal cannabis industry has changed, and this has led to significant opportunities for both companies and investors.
During the last year, we noticed a trend where investors began to focus more on the burgeoning cannabis opportunity in the United States as well as that in other emerging international markets (Australia, Europe, South America, and Africa). Although Canada has been leading the global cannabis movement, these emerging cannabis markets represent significant opportunities for companies to expand their reach.
Chemesis International (CSI: CSE) (CADMF: OTC) is a great example of a cannabis business that is focused on expansion and we are favorable on its growth prospects. When it comes to the United States, the company has been laser focused on the opportunity in California and that in Puerto Rico. Chemesis is also one of the only companies that is levered to the United States as well as South America, by way of its operation in Colombia.
The South American cannabis opportunity has been one of the most significant recent trends and we are favorable on the growth prospects associated with this market. The economics associated with cultivating cannabis in Colombia are very attractive and a significant feature of Chemesis’ long-term story.
Although we are of the opinion that the company’s Colombian operation will play a major role in its long-term story, we are most excited about its leverage to the United States in the near-term. Over the next year, we expect the operations in California to drive significant value and will monitor how the team is able to execute on this.
Capitalizing on the California Cannabis Concentrate Market
Last week, Chemesis reported a significant development in regard to its California operations and completed a definitive agreement to acquire 100% of a fully-operational and fully-licensed extraction and manufacturing facility in Cathedral City, California. We expect this acquisition to quickly prove to be accretive and are favorable on the impact it will have on the business. This acquisition will will bring the company’s processing ability to over 500,000 kg of cannabis per year and this represents a massive opportunity.
California is the world’s largest cannabis market and we are favorable on the leverage to this opportunity. The facility is generating revenue and is expected to further the company’s ability to extract cannabinoids (i.e. THC and CBD) and terpene products. Demand for cannabis concentrates continues to increase and this facility will enhance Chemesis’ leverage to this burgeoning vertical of the cannabis industry.
When it comes to the California cannabis opportunity, Chemesis is well positioned to become a major player in the cannabis concentrate market and we are excited about this. Last week, the company also announced a binding agreement to increase its ownership interest in its flagship manufacturing facility in Cathedral City. Chemesis will acquire the remaining 20% ownership interest that it does not own and we are favorable on this move.
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. 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.
Enhances Leverage to Puerto Rico via a Significant Investment
In early April, Chemesis made a significant investment in GSRX Industries Inc. (GSRX) and acquired 19.9% of the business. This was a strategic investment that will enhance Chemesis’ leverage to California and Puerto Rico. This transaction is complementary to the company’s existing position in these markets as GSRX is focused on acquiring, developing and operating retail cannabis dispensaries in Puerto Rico and California.
Last week, GSRX announced that it expects to report strong second quarter results from its six operational dispensaries in California and Puerto Rico. GSRX has five owned-and-operated medical cannabis dispensaries in Puerto Rico and has one owned-and-operated Green Room dispensary in California. GSRX also operates one Pure and Natural retail kiosk and is in the process of launching two additional hemp based CBD retail outlets in Tennessee and Texas.
GSRX also reported strong numbers for the first three weeks of the second quarter and we are favorable on this. GSRX is forecasting significant growth for the second quarter and expects to generate approx. $3.3 – $3.5 million of revenue during the period. GSRX recently announced unaudited revenue numbers for the first quarter and reported to have generated $2.9 million in revenue during the period.
We are favorable on this relationship and believe that there are significant synergies between the two businesses. One of the reasons we are excited about this opportunity is due to the skills that each company brings to the table. Chemesis has extensive manufacturing, processing and extraction capabilities, which complements GSRX’s ability to professionally operate dispensaries and CBD stores. Another reason we are favorable on this relationship is due to the way it impacts the amount of people that Chemesis can reach. GSRX will expand the company’s footprint in strategic locations, specifically in Puerto Rico, California, Tennessee and Texas.
Under the agreement, Chemesis has a right of first refusal to manufacture GSRX’s current and future production requirements in all jurisdictions where Chemesis has production capabilities. GSRX will also make sure that each of its licensed locations has dedicated shelf space for Chemesis’ brands of products. This is an important part of the relationship and we will monitor how this potential revenue stream benefits Chemesis.
Focused on High-Margin Verticals
Chemesis has been laser focused on the cannabis concentrate opportunity and we believe that this is something that is worth highlighting. During the last year, we have seen a significant increase in the demand for cannabis concentrates and this is a trend that we expect will continue.
Cannabis concentrates are used in products like vaporizers and edibles, which are two of the fastest growing verticals of the industry. The margins associated with these products are much higher when compared to the sale of cannabis flower and this is significant. Chemesis has been highly focused on this burgeoning opportunity and we are favorable on the growth prospects associated with this.
We will be monitoring how Chemesis executes on the cannabis concentrate market and believe that this could prove to be a major growth driver. The company utilizes a volatile BHO (Butane Hash Oil) extraction method that allows for rapid and efficient extraction of cannabinoids from trim. As a result, the company will be able to provide extraction services for THC & CBD products through both ethanol and BHO extraction processes.
The extraction method that the company uses will allow it to produce a unique variety of finished goods that can be varied to achieve desired potencies of different cannabinoids and terpenes. This is important since the company will be able to create a wide variety of cannabis products that appeal to consumers and we will monitor how this business evolves throughout the year.
In the Middle of a Major Expansion in Colombia
Chemesis has been highly focused on the Latin American cannabis opportunity and signed a definitive agreement to acquire La Finca Interacviva-Arachna Med SAS., an integrated cannabis company that has been operational since late 2017 and has access to over 1,000 acres of outdoor cultivation land.
Earlier this year, Chemesis announced that La Finca plans to commence construction of its GMP certified extraction facility which will also house a certified production lab. The facility will have a large production capacity for both domestic and international markets and this represents a significant opportunity for Chemesis. Once the company has constructed a GMP certified extraction facility, it will be able to export products to international cannabis markets and we will monitor how the team executes on this.
The Colombian cannabis market represents an attractive opportunity for Chemesis to produce high-quality low-cost cannabis concentrates. Over the next year, we expect to see a significant increase in demand for these products and Chemesis should be a beneficiary of this.
A Company to be Watching
During the last year, Chemesis International has significantly advanced its fundamental story and has accomplished this through a series of organic and inorganic growth initiatives. The company has been able to use its stock as a currency to make acquisitions and we are favorable on the growth prospects as a result of this. Chemesis is in the middle of a major expansion in California and Colombia and has attractive leverage to the opportunity in Puerto Rico.
Chemesis represents a multi-faceted growth opportunity that has leverage to some of the most exciting cannabis markets and we are bullish on its focus on the cannabis oil opportunity. 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.
We have been highlighting Chemesis since early 2018 and this is an opportunity we have been excited about. To learn more about Chemesis International, please contact email@example.com.
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