The Canadian cannabis sector has been under considerable pressure this summer and this is a trend that we have been following.
Based on historical trends, the cannabis sector tends to come off its summer lows during the month of August and we will monitor how this trend plays out this year. We believe that the global cannabis industry is stronger than ever and we are favorable on the growth prospects on a going forward basis.
During the last month, we have been focused on identifying Canadian cannabis companies that have been impacted by the recent sector weakness and want to highlight an opportunity that we came across. The company, GTEC Holdings Ltd. (GTEC.V) (GGTTF) is a vertically integrated premium Canadian cannabis producer and we have been closely following this opportunity.
With a market capitalization that is less than $60 million, we find the valuation to be attractive when compared to its peers and believe that this worth noting. During the last year, GTEC Holdings has significantly advanced its fundamental story and it has several significant potential catalysts for growth. Today, we have issued an update on the Canadian cannabis producer and believe that this is an opportunity to be watching.
An Emerging Growth Story
In late June, GTEC Holdings reported that its wholly-owned subsidiary, Alberta Craft Cannabis Inc. (ACC) completed a Health Canada license inspection in order to receive its Standard Processing License. This is a significant development as the license would authorize ACC to sell recreational cannabis to Provincial governments across Canada and to manufacture cannabis-derived products (i.e. oils, edibles, beverages, shatter/resin, and vapes) once permitted.
Later this month, ACC expects to receive a formal inspection report from Health Canada and this could prove to be a catalyst for GTEC. We are favorable on this aspect of the business and will monitor how ACC executes on its plans to be granted a Sale for Medical Purposes license. The granting of this license would prove to be a catalyst to the business as it would facilitate direct sales to authorized medical patients.
Going forward, we expect ACC to prove to be a more significant aspect of the business and will monitor how the team continues to execute. ACC has been selling bulk cannabis to other Licensed Producers since late 2018 and we have been monitoring how this side of the business will contribute to the overall company.
GreyBruce Farms Granted Cultivation License
On Tuesday, GTEC announced that Grey Bruce Farms had been granted its cultivation license by Health Canada doubling the company’s current capacity.
Grey Bruce is an automated, state-of-the-art facility located in Kincardine, Ontario. The facility was carefully designed, constructed and equipped with a mandate and focus on systems, technology, process flow and good production practices to optimize output of ultra-premium indoor flower. The initial phase of the facility spans 15,000 sq. ft. and is estimated to produce 1.65 million grams annually. With the licensing of Grey Bruce, the Company’s current annual output is now estimated at approximately 3 million grams.
In accordance with the Cannabis Act and Regulations, Grey Bruce has immediately commenced cultivation of live plants from GTEC’s extensive portfolio of exotic and rare cultivars. GTEC’s exclusively sourced genetics, which have been through a meticulous and comprehensive pheno selection process will be gradually implemented at GTEC’s other facilities.
The Company now has facilities licensed for cultivation in both Eastern and Western Canada. As previously announced, there has been an increased demand for GTEC’s premium flower, and the Grey Bruce facility will enable GTEC to fulfill the demand for its cannabis from other Licensed Producers; and subject to Alberta Craft Cannabis ( receiving approval of its Federal sales license, introduce GTEC products into Provincial supply chains.
In addition to the Standard Cultivation licenses issued to ACC in Edmonton and now Grey Bruce in Kincardine, Ontario, the Company awaits issuance of a third Standard Cultivation license at Tumbleweed Farms in Chase BC. ACC also completed a Health Canada inspection for its Sales License on June 25-26, 2019 and received a formal inspection report from Health Canada on Friday July 5, 2019. ACC is currently compiling its response to the regulators, in order to comply with any requests made within the required ten business day period.
Reports a Significant Addition to the Team
An important aspect of the GTEC Holdings story is related to the additions that have been made to the management team. When it comes to investing in a cannabis business, the management team is the most important aspect of the story and this is an area that GTEC has been highly focused on.
Last month, the Canadian cannabis producer appointed Jurgen Schreiber to its Board of Directors and we are favorable on this addition. He is the former CEO of Shoppers Drug Mart and former Chairman of ALDO and has extensive experience when it comes to building large multinational retail organizations that are primarily focused on health and wellness industry. He brings significant expertise and business acumen from various industries to the GTEC team and will assist in the growth of the company.
We believe that Jurgen represents a significant addition to the Board of Directors and will monitor how he supports the business in the years ahead. Going forward, we expect to see the team make further additions to the management team and to the Board of Directors. GTEC is a company that is just getting started and this is an important aspect of the business to be following.
An Attractive Operating Structure
One of the reasons we are excited about GTEC is related to the current operating structure and we believe this is worth highlighting. The Canadian cannabis producer is comprised of several subsidiaries which are working on completing their respective expansions. Once the initial expansions are complete, GTEC will analyze the initial results to better understand the economics associated with each subsidiary.
GTEC plans to analyze these results before deciding to further expand and further increase production capacity for the facilities that operate the most efficiently and profitably. The company is actively pursuing sales and distribution opportunities across all major business channels (recreational, medical, business-to-business, and export) and we are favorable on this strategy. We believe that this approach will prove to be a smart decision and have provided an update on the existing facilities (besides for ACC) below:
- Tumbleweed Farms: GTEC recently completed construction on its 10,000 sq. ft. purpose-built facility in Chase, BC (expected to produce 1,000 kilograms of cannabis per year). The company is actively pursuing its Cultivation License for this facility.
- Grey Bruce Farms: GTEC completed a major retrofit of an existing industrial building and anticipates fully completing the 15,000 sq. ft. cannabis cultivation facility later this month. The facility is projected to produce 1,640 kilograms of cannabis per year.
- GreenTec Bio-Pharmaceuticals: The facility is GTEC’s flagship, purpose-built facility located in Kelowna, BC. GreenTec is currently in Phase 1 of development, building 20,000 sq. ft. of its planned 80,000 sq. ft. cannabis cultivation facility. Last year, the company started construction and it expects the facility to be completed in mid-2019. GreenTec is projected to produce 2,150 kilograms of cannabis per year.
- 3PL Joint Venture: This pertains to an agreement with F-20 Developments to develop a premium indoor cultivation facility in Vernon, BC. The 3PL (three per light) facility is currently being retrofitted to facilitate the cultivation of ultra-premium cannabis. Phase 1 of this partnership is currently underway, with completion anticipated in the third quarter of 2019. 3PL is projected to produce 8,000 kilograms of cannabis per year.
An Opportunity to be Watching
In May, Sprott Financial released a report of GTEC and assigned the company a Buy Rating and a $2 price target. We believe that GTEC is an opportunity that has been flying under the radar and we will be monitoring how the team continues to advance the business. Over the next year, we expect to receive several developments as it relates to its subsidiaries and find this to be significant.
GTEC is led by a management team that is focused on creating value for shareholders and we are favorable on this aspect of the story. When compared to its peers, GTEC has an attractive valuation and is trading at a significant discount to companies of a similar size. We believe that GTEC has several major potential catalysts for growth and we are favorable on the risk-reward profile.
To learn more about GTEC and to be added to our list, please send an email to firstname.lastname@example.org.
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