During the last month, Aleafia Health Inc. (ALEF.TO) (ALEAF) has been nothing short of an execution story and we are impressed with how the recent developments have enhanced the overall story.
The market seems to be starting to recognize that Aleafia Health is an underappreciated opportunity and we believe that this is worth highlighting. Last month, the company received a positive upgrade from Eight Capital which issued the company a Buy rating and a $3 price target. This was a significant development that should result in increased awareness for the Canadian cannabis producer.
When looking at Aleafia Health, we see a company that has several significant potential catalysts for growth and find this to be significant. Today, we have issued an update on the Canadian cannabis producer and believe that this opportunity has reached an inflection point. When compared to its peers, Aleafia Health is trading at a massive discount and this is an opportunity to be following.
Health Canada Approves its Outdoor Cultivation Operation
Earlier this week, Aleafia Health recorded a major milestone and was granted approval by Health Canada for an outdoor cannabis cultivation facility. The company has been expecting this approval and has already has dedicated growing rooms at its Paris Indoor Grow Facility to propagate starter clones with strains that are particularly well-suited to outdoor cultivation. Due to the management team’s foresight, approx. 13,000 of these starter clones are already at the facility and we will monitor how the team is able to advance this operation.
One of the reasons we are excited about the outdoor cultivation opportunity is due to the growth prospects associated with it. The license that was issued by Health Canada allows for the cultivation of cannabis in Zone 1 of the facility which represents approx. 292,000 sq. ft. of of immediate cultivation space. Next month, Aleafia Health expects to receive a Health Canada license amendment for the remainder of the total 1.1 million sq. ft. facility and expect this to be a major catalyst for the overall business. In order to be well positioned once the company is granted the amendment, some of the 13,000 starter clones will grow in pots in Zone 1 and will be moved to the expanded area upon the receipt of the license amendment.
We believe that the outdoor cultivation opportunity represents a huge potential growth driver for Aleafia Health and will monitor how the team is able to execute on this. The company plans to transport the cannabis grown at the outdoor facility to its Paris processing facility for the production of high-margin, value-added cannabis health and wellness products. This represents a massive opportunity and is one of the reasons we were so excited about the acquisition of Emblem Inc.
Emblem is an Underappreciated Aspect of the Business
Over the next year, we expect to see Emblem add significant value to the existing business and expect this asset to play a key role in the long-term success of Aleafia Health. This was a transformational acquisition that drastically improved Aleafia Health’s product portfolio with additional cannabis strains, oil formulations, capsules, and an oral dose-metered spray. We expect Emblem’s product portfolio to continue to drive product innovation for the combined company and find this to be an attractive aspect of the story.
Going forward, Aleafia Health will be able to leverage Emblem’s extraction and product innovation to sell high-margin medical cannabis directly to its patient base (for the first time) and we believe that the market underappreciates the amount of value that can be created between the two businesses. This represents a massive opportunity and we expect this to be a major value driver for the combined company over the next year.
The acquisition of Emblem also had a significant impact on Aleafia Health’s leverage to the international cannabis opportunity and we are bullish on this aspect of the story. The company will benefit from Emblem’s previously announced joint venture with German pharmaceutical wholesaler Acnos Pharma GmbH and have been bullish on this market. Over the next year, we expect to see Aleafia Health expand into additional European cannabis markets and are favorable on this opportunity for the business. We believe that the market does not associate much value with the international side of Aleafia Health’s business and believe that this is worth noting.
Levered the Domestic and International Cannabis Opportunity
When looking at the Aleafia Health opportunity, we are bullish on the amount of distribution that is already in place and believe that this is worth highlighting. The company has distribution relationships across four provincial providers (Ontario, Saskatchewan, British Columbia and Alberta), three independent retailers (Fire & Flower, Starbuds, and OnePlant), and Shoppers Drug Mart. The company’s recreational and medical products are expected to be sold via its robust domestic and international distribution platform, including:
- The company’s national network of Canabo Medical and GrowWise Health clinics and education centers with over 60,000 patients seen to date
- International distribution to burgeoning medical cannabis markets Australia and Germany via existing partnerships
- Provincial supply agreements with four provinces that represent approx. two-thirds of the Canadian population
Earlier this year, Aleafia Health expanded on its relationship with CannaPacific and increased the size of its investment in the Australian medical cannabis company. CannaPacific is federally licensed to cultivate and research cannabis and we are favorable on the leverage to the Australian cannabis market. The investment immediately follows the closing of CannaPacific’s acquisition of a 108,000 sq. ft. greenhouse facility that will be used for cannabis cultivation and for the eventual sale to medical patients and global exports.
CannaPacific intends to leverage Aleafia Health’s global cannabis health and wellness ecosystem across the company’s four divisions: Aleafia Campus, Health & Wellness Clinics, FoliEdge Academy, and eCommerce Consumer Marketplace. We are favorable on the growth prospects associated with this relationship and will monitor how the team executes on this. We will monitor how this relationship evolves over the next year and are favorable on this aspect of the story.
A Growth Story to be Watching
Health Canada’s approval of Aleafia Health’s outdoor cannabis cultivation was a major milestone for the overall business and we are bullish on the growth prospects associated with this opportunity. The Canadian cannabis producer is highly focused on the cannabis oil market and we find this to be significant. Demand for cannabis concentrates continues to increase and this is a trend that we expect to continue.
Through the outdoor operation, Aleafia Health will be able to produce significantly more cannabis flower at a cost per gram that is much more attractive when compared to an indoor facility and we find this to be significant. With the increased production capacity, the company will significantly accelerate its ability to grow, produce and sell high-margin, value added products to cannabis health and wellness consumers in Canada and globally. We expect this to be a major revenue driver for Aleafia Health and expect this to be a major catalyst once the company reports strong numbers.
Even though Aleafia Health has been able to significantly advance its fundamental story, the shares have been under heavy pressure since March. We believe that the company represents a compelling play on the burgeoning global cannabis market and this is an opportunity to be watching. To learn more about Aleafia Health, please contact firstname.lastname@example.org.
Pursuant to an agreement between StoneBridge Partners LLC and Aleafia Health Inc. (ALEF) we have been hired for a period of 180 days beginning February 1, 2019 and ending August 1, 2019 to publicly disseminate information about (ALEF) including on the Website and other media including Facebook and Twitter. We are being paid $7,500 per month (ALEF) for or were paid “ZERO” shares of unrestricted or restricted common shares. We own zero shares of (ALEF), which we purchased in the open market. We plan to sell the “ZERO” shares of (ALEF) 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 (ALEF) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.