The Canadian cannabis industry has seen massive growth over the last two years and this has led to the creation of sub-industries such as licensed producers, biotechnology, patient services, big data and technology, holding companies, and more.
One of the roadblocks the global cannabis industry faces is the lack of clinical data. This issue creates a challenge for doctors to properly dose and prescribe cannabis to patients. As the industry continues to mature, the amount of data available for doctors and prescribers will increase and this data will not come cheap.
Empower Clinics Inc. (EPW.CN) (ADENF) is levered to this opportunity and we have been closely monitoring the company. The company is levered to the emerging marijuana market in the United States and has a three-pronged business model:
- Medical clinics
- Proprietary cannabinoid formulas and recipes to support unique patient conditions
- Data collection monetization (a current database of over 96,000 patients)
Collecting Valuable Data From 15 Clinics
With 15 active clinics in two states, Empower is generating valuable patient data while increasing market share in a burgeoning sector. The amount of data being generated is significant and we see value in this. We think the market significantly undervalues this data as it provides important information on what patients are taking to treat specific ailments.
As Empower continues to generate important patient data, the value of this data and the knowledge that the company has will continue to increase. Empower has initially targeted markets in Washington and Oregon. We are favorable on the leverage to these markets and the future growth as Empower continues to expand its reach.
On both the cultivation and biopharma side of the industry, there is an enormous appetite for higher-quality data. We have seen companies in Canada capitalize on these types of opportunities and we are favorable on this area of growth. The amount of revenue that can be generated on this side of the business is significant and the market is not taking this into account.
A Proven Execution Story
Empower initially focused on Washington and Oregon because the states have developed medical marijuana markets where state coverage continues to grow and qualifying conditions expand. The company’s management team believes that the leadership and learning in these two states has proven extremely valuable in the company’s national expansion growth cycle.
The Oregon and Washington markets looked especially enticing as a base for the retail operations of medical cannabis clinics. One thing that Washington and Oregon share is an enormous (and unrestricted) number of cannabis cultivation licenses.
This has created an oversupply situation and has been bad for cultivators. Retailers benefit when it comes to margins since the price drop on the retail side has been less than that on the wholesale side.
In the Middle of a Major Expansion
Empower is focused on being a national medical marijuana clinic company. The company is led by a management team with diverse backgrounds and different strengths. This is important when it comes to executing on a national level and we think this is a significant aspect of the story.
The existing clinics provide a unique experience that has resonated well with patients. This is a model that can be replicated in burgeoning markets across the United States and we are bullish on this.
Empower has a devoted team of medical professionals with academic credentials that include training at Harvard, Johns Hopkins, and UCLA. With 6 medical doctors among the company’s 36 employees, Empower’s clinic services are backed by formal medical training.
The medical cannabis clinic company is focused on executing on its mission to provide the highest standard of care in its clinic operations and it is also delivering on growth. The company is in the final stages of expanding into Illinois, which will be a catalyst for the company.
Empower has over 27,000 active patients and a total database of over 92,000 historical patients. These are numbers that rival the industry leaders in Canadian cannabis clinics. We expect to see Empower become one of the largest clinic companies in North America due to the leverage to burgeoning markets in the United States.
Once the company begins to capitalize on the Illinois opportunity, the number of patients will increase significantly. The population of the United States is ten times that of Canada, which provides significant growth potential. The focus on markets with large populations will help Empower surpass other clinic companies in Canada and the United States (from an active patient standpoint).
A Multi-Faceted Growth Opportunity
Empower’s growth strategy is to add to operations and revenues through both more fixed and satellite clinics. This flexible model allows Empower to meet the incremental demand for medicinal cannabis services in the most cost-effective manner.
Through input from its clinical physicians, Empower is creating proprietary terpene/cannabinoid formulas targeting specific medical ailments. The company is currently reporting royalty margins of approximately 15% on both its branded and white label sales.
We are favorable on the opportunities for growth and Empower is projecting a strong increase in sales as well as margins going forward. If the management is able to execute, we think these numbers can prove to be conservative. Empower is focused on an industry with incredible growth prospects and has several levers for growth. This is something to watch.