After Canopy Growth Corp. (WEED.TO) (CGC) reported better-than-expected quarterly earnings, we noticed an increase in interest in the cannabis sector and this is a trend that our readers need to be aware of.
The shift in market sentiment follows a weak period for the cannabis sector of which we continue to have a constructive long-term outlook. Although we are favorable on the shift, we continue to be highly selective on the company-level and will maintain a patient approach to the industry.
There are a number of factors that we look into when analyzing a cannabis company. We believe that a business must possess certain traits in order to be a successful public company and want to highlight three of these traits below:
- Management Team: We are interested in a company that is led by a management team that is comprised of leaders with diverse skill sets and proven track records of success in or outside the cannabis industry
- Company Performance: We are specifically interested in how the business has performed over the last few years. We prefer businesses with attractive growth prospects, ramping revenues, and a focus on profitability
- Balance Sheet: Capital is much tougher to access in the cannabis industry than before. We are primarily interested in companies that have a strong balance sheet and are able to capitalize on strategic growth opportunities (organic or inorganic)
Another important factor that is not highlighted in the section above is related to the structure of the business from an operational and financial standpoint. Today, we want to highlight a company that meets our criteria and is an opportunity that is flying under the radar.
The company, Chemesis International (CSI.CN) (CADMF) is in the middle of a major expansion and has been focused on the cannabis opportunity in the US and abroad. When we analyze the assets that are owned by the business, we see an opportunity that is in the early innings of a major growth cycle.
An Execution Story in the Making
During the last year, Chemesis has been highly focused on increasing market share in the cannabis markets that it is focused on. The company has been executing on this strategy and we are bullish on the markets that it is levered to. When it comes to the US market, we believe that cannabis companies need to be focused on major state markets. Chemesis is focused on several strategic markets and regions in the US and we find this to be of importance.
Through a series of investments and acquisitions, Chemesis has been able to further expand its position in the US and has been highly focused on the opportunity in California, Michigan, and Puerto Rico. When it comes to the international side of the business, the company is levered to the opportunity in Colombia and we are favorable on the advancements that have been made on this front.
Going forward, we believe that Chemesis has attractive growth prospects and are of the opinion that the market does not fully appreciate this aspect of the story. We believe that the company has a favorable risk-reward profile and find the valuation to be attractive at current levels. On a comparative basis, Chemesis is trading at a considerable discount to its peers in the US and we find this to be significant due to the leverage that it has to Colombia.
A Growth Story to be Watching
In 2019, Chemesis strengthened its leverage to the Puerto Rico and the California markets via the acquisition of GRSX, which has dispensaries in Puerto Rico and a fully licensed cannabis manufacturing facility in Northern California. We believe that the acquisition of GRSX represents a strategic transaction for Chemesis due to types of assets that are owned by each company. The combined company is better positioned to capitalize on the burgeoning cannabis opportunities in Puerto Rico and California and believe that this aspect of the story is not fully appreciated by the market.
Last year, Chemesis made its initially entry in Puerto Rico through the acquisition of Natural Ventures PR, a licensed medical cultivator, manufacturer and distributor of high-quality cannabis products. We are favorable on the value that GRSX adds to this asset and expect to see the business find substantial synergies between each other. As Chemesis continues to execute and add value to the entire operation, we expect to see the market take these assets more seriously and believe that this leverage provides the business with substantial upside potential.
In late 2019, Chemesis developed a strategy to capitalize on the cannabis opportunity in the Midwest. The company has been focused on the CBD market in Michigan and has plans to further expand its position in the Midwest. We are bullish on the growth prospects associated with the Midwest and Chemesis was an early mover on this region of the US. Over the next year, we expect the company to report ramping revenues from the Midwest and this is something that our readers need to be aware of.
Going forward, Chemesis plans to leverage the increased number of dispensaries, the partnerships, the brands, and the team to further expand and create more efficient operations. We believe that the management team has the business well positioned for growth in a number of major cannabis markets and find this to be significant.
An Opportunity that is Flying under the Radar
2020 has already proven to be a transformative year for Chemesis and we are bullish on the growth prospects associated with the assets that are owned by the business. We are also impressed with how the company has improved its leverage to the Latin American cannabis market and this is an opportunity that provides the business with substantial upside potential.
Over the next year, we expect to see Chemesis advance the business through a series of growth initiatives. The company has several significant revenue streams and we believe that the management team is focused on bringing the business down a path of profitability.
Chemesis is a company that has substantial potential catalysts for growth and we believe that the market does not appreciate this aspect of the story. From Colombia to California, the business is focused on increasing market share in burgeoning cannabis markets and we will monitor how the management team is able to execute on this.
If you are interested in learnings more about Chemesis International, please send an email to email@example.com and we will add you to our distribution list.
Pursuant to an agreement between StoneBridge Partners LLC and Chemesis International we have been hired for a period of 365 days beginning July 15, 2018 and ending July 15, 2019 to publicly disseminate information about (CSI) including on the Website and other media including Facebook and Twitter. We are being paid $5,000 per month for a period of 3 months. We own zero shares of (CSI), which we purchased in the open market. We plan to sell the “ZERO” shares of (CSI) 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 (CSI) 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 renewed for a period of 180 days beginning on August 2, 2019 and ending on February 2, 2020. This contract has been renewed for a period of 60 days beginning on January 27th, 2020 and ending on March 27th 2020.