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2018 has proven to be a banner year for the Canadian cannabis industry. One of the most significant developments was Altria’s (MO) entrance into the sector through an investment in Cronos Group (CRON.TO) (CRON), a leading Canadian cannabis producer.
In 2019, we expect to see more investments like this and Canadian Licensed Producers are expected to be the greatest beneficiaries. We have been closely monitoring this trend and consider it to be a major potential catalyst for the sector.
Despite this positive development, Canadian cannabis stocks have been under pressure and we have been keeping an eye on these price movements. Today, we want to highlight a Canadian Licensed Producer that has been flying under the radar and is attractively valued when compared to its peers.
The company, Indiva Limited (NDVA.V) (NDVAF) is in the middle of a major expansion and has been focused on the global cannabis opportunity. The shares have been under pressure with the market and this is a company to watch.
Enters the European Cannabis Market via Acquisition
In November, Indiva Limited signed a non-binding letter of intent with AEssense Europe for the acquisition of 100% of a medical cannabis cultivation and handling license in Denmark under the Danish Medicines Agency development scheme.
In early 2018, AEssense Europe received its license from the Danish Medicines Agency and has strategic leverage to the European cannabis market. In return for the license, Indiva will issue AEssense Europe 1.6 million common shares and will pay $1.1 million in cash over a three year period.
This acquisition supports Indiva’s expansion plans as it will pursue the cultivation and worldwide distribution of EU-GMP certified medical cannabis and cannabis-derived products. To support this growth initiative, Indiva has created a wholly-owned subsidiary, Indiva Europe, which will be responsible for financing and managing the European operations.
In a continuing collaboration with AEssense, Indiva Europe plans to work with AEssense to construct an indoor grow facility based on AEssense's proprietary AEtrium fully automated aeroponic grow platform which will enable Indiva to produce consistent, ultra-clean, premium pharmaceutical quality cannabis product compliant with GACP and EU-GMP standards. This is an important aspect of the story since it will be producing cannabis under some of the most stringent standards, allowing the company to export cannabis to other European markets.
The companies have identified several sites to construct a 1,000 sq. ft. research lab as part of the production facility. These locations offer significant room to expand and to construct facilities that will be able to serve Danish patients as well as the European market with high-quality cannabis products.
Under the agreement, Indiva will have the exclusive right to all cannabis-related production. Subject to applicable regulatory approvals, Indiva will also leverage the Denmark license for the importation of EU-GMP cannabis into the Danish and European markets.
The acquisition of this license and the collaboration with AEssense provides a gateway to the European cannabis market and we are bullish on this opportunity. With a population of more than 500 million, the European cannabis market is expected to be massive. Indiva is well positioned to capitalize on this burgeoning opportunity and will be able to produce and distribute cannabis under some of the most stringent quality rules in the world.
Indiva successfully Imports 3 premium CBD Strains From Swiss Cannabis Producer
Today, Indiva announce it has successfully imported 3 premium CBD strains from Swiss cannabis producer Medropharm GmbH and Greenfields Health Care S.A. Having entered a strategic cooperation with the Swiss producer in 2017, Indiva's CEO Niel Marotta has announced that the London-based company now has tissue cultures of the 3 strains propagating in their growth chamber.
"We are proud to be the exclusive Canadian producer of these CBD strains, and pleased to enjoy a symbiotic relationship with Medropharm and Greenfields," says Marotta. "Not only are we privileged to access these remarkable strains, we also have the benefit of their guidance and support during the cultivation process."
The 3 imported strains are remarkably high in CBD, and are ideally suited for medicinal users of cannabis. "Like Indiva, our Swiss partners are known for their commitment to improving their customers' health and quality of life," notes Marotta. "These strains and the products derived from them are going to help a lot of Canadians in pain."
Focused on the Retail Side of the Cannabis Business
The retail side of the cannabis business is significant and Indiva has been laser focused on this opportunity. Last month, Indiva issued an update on its plan to open cannabis retail outlets throughout Ontario in 2019 and we are monitoring how the team executes on this growth initiative.
In September, the province of Ontario announced that Licensed Producers under the Cannabis Act will be allowed to open a retail location at a production facility. Under the policy, the province may limit the ownership interests that Licensed Producers may hold in other Ontario cannabis retail businesses. This regulation is expected to be implemented in the spring and this represents a significant opportunity for Indiva.
Indiva plans to open a retail outlet at its licensed production facility in London, Ontario, subject to applicable regulatory approvals. Indiva believes that its retail operations will benefit from the strategic location of the facility and we are favorable on the growth prospects as a result of this. Indiva will benefit from being the only operating licensed cannabis producer in London and this is an opportunity to watch.
Prior to the announcement from the province of Ontario, Indiva was actively looking to secure leases for retail cannabis locations in major urban centers in Ontario. Indiva has secured leases or offers to lease in Ottawa, Toronto, and in Guelph. Indiva expects to transfer the leases to a newly created corporation in which Indiva will maintain a minor equity interest.
This represents a significant opportunity for Indiva and we will monitor how the team executes on this. The company is in the middle of a major expansion and will be able to create significant value for shareholders once it is complete.
In the Middle of a Major Expansion
In August, Indiva reported a major milestone and was granted a Sale License from Health Canada. This development significantly advances the company’s fundamental story and leaves them well positioned to capitalize on the burgeoning Canadian cannabis market.
Indiva commenced construction on the expansion of its 10,000 sq. ft. London facility in the spring of 2018 and expects to complete construction in the first quarter of 2019. Although the facility is expected to be completed in 2019, additional production capacity is expected to come on-line in the near future and we are favorable on this.
The fully-funded facility expansion includes eight additional flower rooms, extraction and processing facilities and a laboratory for research, development, testing and tissue culture. Once construction is complete, the facility will be approximately 40,000 sq. ft. and will be able to produce more than 3,000 kilograms of premium cannabis flower per year.
Indiva has been very focused on the cannabis oil and the smokeless product opportunity. The Canadian cannabis producer has secured relationship with leading edible brands like Bhang Chocolates and Ruby Cannabis Sugars, and upon regulatory approval, plans to offer these products in Canada.
An Underappreciated Growth Opportunity
Although Indiva has significantly advanced its fundamental story, the shares have been under pressure and have been trading lower with the market. We are favorable on the company’s growth prospects as we head into 2019 and believe that the market underappreciates this.
The granting of a Sales License was a significant development and we are monitoring how Indiva executes from here. Following the legalization of recreational cannabis in Canada, demand for cannabis has significantly increased and Indiva is well positioned to capitalize on this.
Indiva has been focused on increasing production capacity and securing strategic relationships with leading cannabis brands. These moves will support growth going forward and this is something to watch.
When compared to its peers, Indiva is trading at an attractive valuation and we will be monitoring price movements from here. To learn more about the Canadian cannabis producer, please email email@example.com