Although Washington state is well known for being an early mover on the recreational cannabis industry, the market does not have the same fanfare when compared to Colorado and we believe that the market could be missing out on something big.
According to the Washington State Treasurer, the state’s legal cannabis industry generated $1.3 billion sales in fiscal year 2017, up from $786 million in fiscal 2016. Washington State represents an exciting cannabis market and we are bullish on the growth that we have seen over the last few years as well as the impact that this has had on the companies that are focused on this opportunity.
In July, we highlighted Greenstar Biosciences (GSTR.CN) which has attractive leverage to the Washington State market through the relationship that it has with Cowlitz County Cannabis Cultivation Inc. During the last few years, Cowlitz has been a major name in the Washington State market and is a leading producer, marketer and vendor of recreational cannabis products.
Cowlitz has a proven track record of success and is known for its premium cannabis products that are available at approximately 20% of cannabis retailers throughout the state. We believe that the breadth of Cowlitz’s products has played a major role in the success of the brand and are favorable on the type of products that are being offered. Cowlitz brands include; Columbia Valley Private Reserve, Cowlitz Creeper, Cowlitz Gold, High Guys and Dab Dudes and they have seen steady growth in the past five years.
Cowlitz exceeded $14 million in revenue for the 2018 calendar year and is on pace to exceed that number again in 2019. Under the agreement, Greenstar is the owner of the property leases, brands and intellectual property of Cowlitz County Cannabis Cultivation Inc. and are favorable on the expansion opportunity when it comes to entering additional markets across the US.
A US Cannabis Growth Story to be Watching
GreenStar Biosciences Corp. (CSE: GSTR) represents an attractive play on the US market and is an opportunity that we have been closely watching. Earlier this month, the company issued an operational update after reporting to have received positive results from an initial cultivation test involving the growth of approximately 2,500 plants using the proprietary patent-pending grow and cultivation technology of Progressive Herbs Inc.
This represents a significant milestone and builds on the previous announced joint venture with Progressive. The joint venture operates under the name Capri and has the exclusive license to use Progressive’s proprietary cultivation technology. We are bullish on this aspect of the business and believe that the market underappreciates the number of avenues that the company has for growth through Capri.
GreenStar also received testing results from independent laboratory on the three strains used in the initial cultivation test, which demonstrated total cannabinoid percentages between 22.85% to 32.54%, depending on the strain tested. This represents a significant accomplishment and a vast majority of cultivators cannot produce cannabis that are this high in THC. We find this to a significant development for the company and are favorable on the results from the independent laboratory.
The results came from seeds (from three different proprietary strains) that were planted inside a 200-square-foot room at Cowlitz’s warehouse facilities in Washington State. The results of this initial cultivation test appear to validate several efficiencies and advantages of the proprietary cultivation technology when compared to traditional greenhouse operations.
Two of the main benefits pertain to the higher total cannabinoid levels that were reported by an independent laboratory as well as the lower operation costs associated with the cultivation process. Preliminary evidence shows that the plants can be cultivated in sub-optimal facilities that do not have the best equipment. Another benefit is related to the amount of time it takes to harvest and we find this to be significant. According to the update, all of the plants were harvested in approx. 72 days, allowing for up to five harvest cycles per year. Most operators report three to four harvests per year and we find this to be significant.
These factors benefit the business in a number of ways and we are bullish on the long-term growth prospects associated with this. The company is reporting better THC percentages, lower operational expenditures, and faster harvest times. This should result is incremental revenue growth while costs dramatically decrease. As Greenstar continues to execute, we will monitor how the company’s fundamentals continue to improve and believe this aspect of the story is not appreciated by the street.
Independent laboratory testing on random flower samples of the harvested plants was conducted by Praxis Laboratory, an accredited Washington State testing facility. Praxis also performed chemical residue screening for 59 different herbicides, pesticides and fungicides on Strain 2 during its grow cycle and reported a pass result for each chemical tested, with all but one showing a result of not detected or below minimum detection limits.
The company believes these test results are very important given the numerous product recalls in both Canada and the US due to pesticide, chemical, heavy metal and other contamination issues. We agree with this belief, especially after all the issues that have been reported by Juul. We believe that Greenstar is well positioned to record strong growth and expect Capri to play a major role in this.
Through Capri, Greenstar intends to continue testing of this proprietary technology to confirm benefits and efficiencies on a larger scale. Through Capri, the company also intends to use the technology not only to secure low-cost indoor production for itself but also to build out a revenue stream through licensing of the proprietary technology to other producers. We are bullish on the growth prospects associated with this strategy and will monitor how the team continues to execute.
A US Cannabis Company that is Flying Under the Radar
During the last year, Greenstar has recorded several milestones and has been laser focused on execution. Through Cowlitz, the company plans to expand into emerging US cannabis markets and we are bullish on the growth prospects associated with this strategy. We believe that Greenstar is in the early innings of a major growth cycle and is an opportunity to be watching.
Going forward, we expect Greenstar to expand its reach and are favorable on the recent changes to the leadership team. We believe that the company has a strong balance sheet and will use the capital on hand to continue to expand its position across the US. When compared to its peers, we believe that Greenstar is trading at a considerable discount and are favorable on this aspect of the story.
In a market that is focused on safety, Greenstar is well positioned for growth and we are favorable on the process that is place to bring products to market. We believe that this process removes a major potential risk from the company and find this to be significant. Over the next year, we expect to see Greenstar replicate its strategy in markets across the US and are bullish on the growth prospects associated with this.
To learn more about how Greenstar plans to be a US cannabis leader, please reach out to email@example.com to be added to our distribution list.
Pursuant to an agreement between StoneBridge Partners LLC and GreenStar Biosciences we have been hired for a period of 90 days beginning May 28, 2019 and ending August 28, 2019 to publicly disseminate information about (GSTR) including on the Website and other media including Facebook and Twitter. We are being paid $7,500 per month (GSTR) for or were paid “ZERO” shares of unrestricted or restricted common shares. We own two hundred thousand (200,000) shares of (GSTR), which we purchased via private placement. We plan to sell the “ZERO” shares of (GSTR) 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 (GSTR) 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 extended for a period of 90 days.