During the last two years, there has been a significant increase in the number of publicly traded Canadian Licensed Producers (LPs) and we have been closely following this trend by analyzing these new listings. While we have seen a substantial increase in the number of quality opportunities, we have avoided some of these new listings and believe that it is important to be selective when looking at this sub-sector of the cannabis industry.
When it comes to identifying quality opportunities in the cannabis industry, we are looking at companies that possess the following features:
- Represents an advanced or differentiated opportunity
- Has a strong a balance sheet and is well positioned to capitalize on growth opportunities (organic or inorganic)
- Is led by a management team that is focused on creating value for shareholders
- A company that could be the acquirer or the acquisition target
- Has an attractive valuation and has significant catalysts for growth.
Earlier this month, we published a report on GTEC Holdings Ltd. (GTEC: TSX Venture) (GGTTF: OTCQB) and wanted to issue a follow up piece after receiving numerous questions about the emerging Canadian LP. We believe that GTEC represents a differentiated opportunity and possesses traits that lead us to believe that it has significant upside potential.
GTEC: A Differentiated Cannabis Company
During the last year, GTEC Holdings has been highly focused on execution and has been able to significantly advanced its story. The Canadian cannabis producer is comprised of several late stage ACMPR applicants which are working on completing their respective expansions and this is something that we are watching closely.
We are favorable on the company’s structure and the wait-and-see approach that it is taking with its subsidiaries’ respective buildouts. Once these initial expansions are complete, GTEC will analyze the initial results to better understand the economics associated with each facility. The company plans to breakdown these results before it decided to expand the size and increase the production capacity of the facilities that operate the most efficiently and profitably.
When compared to other Canadian LPs, GTEC has a unique approach when it comes to expanding and we are favorable on this. Instead of investing tens-of-millions-of-dollars into a facility, the company wants to understand the economics associated with producing cannabis and we believe that this is a smart approach. This is a unique way to approach cannabis cultivation and we are favorable on this operating structure and have provided an update on the existing facilities below:
- Alberta Craft Cannabis Inc. (ACC): The 14,000 sq. ft. craft cannabis cultivation facility is based in Edmonton, Alberta and has been generating revenues. The facility is fully operational and is able to produce 1,300 kilograms of cannabis per year.
- 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 Execution Story to be Watching
One of the reasons we are favorable on GTEC is due to the number of catalysts that it has for growth. Last month, GTEC reported that ACC completed its first harvest of 2019 and is now operating at a fully utilized production capacity. ACC expects to be harvesting every 10 days and the company expects to see ACC exceed its projected annual output of 1,300 kilograms of premium cannabis due to the harvests having higher yields than originally anticipated.
This was a significant development for GTEC and we believe that the better-than-expected production yield will lead to stronger-than-forecasted revenue growth, which could prove to be a significant catalyst later this year. At the time of this release, the company announced that ACC has seen significant demand for its premium cannabis flower, which is being sold to multiple LPs across Canada and we are favorable on this. Going forward, we will monitor how ACC continues to add value to the overall business and are excited about the growth prospects associated with this division.
The combination of the better-than-expected production yield and the strong demand from several Canadian LPs is significant and we are favorable the growth potential that is associated with it. GTEC is in the early stages of a major expansion and we are bullish on its opportunity to penetrate the Canadian market.
Another reason we are favorable on GTEC is due to the strategic relationships that it has in place. Last year, the company entered into a cannabis supply agreement with Namaste Technologies Inc. (N.V) (NXTTF) and this partnership is starting to pay dividends. According to the agreement, Namaste’s wholly owned subsidiary, Cannmart, will purchase cannabis from GTEC to resell on Cannmart’s online medical cannabis platform.
In late 2018, GTEC started sending the cannabis over to CannMart for re-sale after ACC became operational. Namaste is one of the better-known cannabis companies and it has been able to create a massive network of cannabis businesses and consumers over the last few years. Through this network, GTEC has been able to generate strong demand for its cannabis products and we find this to be significant. We are favorable on the growth prospects associated with this relationship and will monitor how this agreement creates value for the company on a going forward basis.
An Opportunity that is Flying Under the Radar
2019 has been a banner year for GTEC Holdings and we are closely monitoring how the team continues to execute. So far this year, the shares have been trending higher and the market has been responding favorable to the recent announcements. We believe that this opportunity has been flying under the radar and believe that it is starting to gain traction and worth watching.
Although GTEC has significantly advanced its fundamental story, the shares continue to trade at a significant discount to its peers and this something worth noting. One of the reasons we are excited about this opportunity is due the number of potential catalysts for growth and are favorable on the relationships that it currently has in place.
During the last year, we have seen significant consolidation with Canadian LPs, and this is a trend that we expect to continue. Last year, GTEC came under pressure after the merger with Invictus MD Strategies (GENE.V) (IVITF) was called off and we believe that this created an opportunity for a new company to step in. We believe that GTEC’s attractive valuation makes it an acquisition target and this is something we are favorable one.
GTEC Holdings is a company that has significant catalysts for growth, and we are favorable on the relationships that it has in place to support growth. Over the next year, we expect to see the Canadian cannabis producer report some significant developments and we believe that it has several catalysts for growth.
To learn more about how GTEC Holdings is well positioned to capitalize on the Canadian medical and recreational cannabis industry, please send an email to email@example.com.
Pursuant to an agreement between StoneBridge Partners LLC and GTEC Holdings LTD. we have been hired for a period of 365 days beginning July 1, 2018 and ending July 1, 2019 to publicly disseminate information about (GTEC) including on the Website and other media including Facebook and Twitter. We are being paid $6,500 per month for a period of 12 months. We own zero shares of (GTEC), which we purchased in the open market. We plan to sell the “ZERO” shares of (GTEC) 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 (GTEC) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.