So far this year, we have seen increased interest in the California cannabis market from both an investor and operator perspective. This comes as regulators work to shut down non-licensed cannabis cultivation and retail operations across the state.
The closure of illegal cannabis operations is one of the most significant trends that is taking place in California and this is something that we are excited about. Going forward, licensed California cannabis businesses should recognize considerable revenue growth and for that reason, we have been focused on identifying companies that should benefit from this development.
Next Green Wave Holdings Inc. (NGW.CN) (NXGWF) is a California cannabis company that is in the middle of a major transition that we have been closely following. Last month, the company announced that Leigh Hughes will be stepping down as CEO and Executive Chairman and this is a development that caught our attention. Leigh has guided the company through its early phases and played a key role in its transition into a cultivator and Next Green Wave made a managerial change, adding significant human capital as it transitions into cultivation and distribution in California.
Moving forward, Mike Jennings will serve as the interim Chief Executive Officer and will continue to act as Chief Operating Officer. As one of the company’s founders, Mike is the perfect candidate to manage the operation as Next Green Wave enters an important part of its growth cycle. The company has evolved into a revenue generating business that represents a multi-faceted growth story with attractive leverage to the cannabis value chain.
Next Green Wave also reported that Matt Jewell will serve as Chief Financial Officer and we find this to be significant due the expertise that he brings to the team. He has spent the last several years assisting companies in emerging industries in California scale from a financial reporting, treasury, human resources, legal and operational perspective. Before joining Next Green Wave 14 months ago, he spent the initial years of his career at KPMG where he gathered his base knowledge of financial reporting, tax, compliance, process and control implementation.
The recent additions have already proved to be instrumental to way the Next Green Wave’s story has evolved over the last year and will continue to lead the company through this exciting next stage of growth. We are excited about how Next Green Wave is positioned from a human capital and operational standpoint and believe this aspect of the story is not fully appreciated by the street.
Transitions Into a Revenue Generating Business
During the month of August, Next Green Wave reported several major milestones for the business by completing its first premium cannabis flower harvest and becoming a fully operational California cannabis business. With this development, all 14 flower rooms are now full stocked with plants (10 of which are in the flowering stage nearing harvest). The cannabis produced from these rooms will allow Next Green Wave to execute on its four main revenue generating verticals (nursery, cultivation, extraction, and product distribution) and we expect this to be a major catalyst for the business.
Last month, Next Green Wave launched its all natural CBD line “HartLuck” in partnership with Carey Hart, a distinguished former professional motocross competitor and celebrated figure in today’s pop culture. The premium brand offers a wide variety of full spectrum CBD products (i.e. tinctures, salves and gel capsules), exclusively formulated by SDC, that are now available at selected specialty stores throughout California and on the HartLuck website.
These developments represent significant advancements in the fundamental story as Next Green Wave transitions into a revenue generating California cannabis business that has several avenues for growth. We are of the opinion that the market does not fully understand how the business has transitioned and believe that Next Green Wave has reach a major inflection point.
When looking at Next Green Wave, we see a business that has an attractive portfolio of cannabis brands and can easily scale these brands in cannabis markets across the US. Over the last year, Next Green Wave has been building a portfolio of leading cannabis brands through which it offers its products: Carey Hart, Loki the Wolfdog, King Louie, Sketchy Tank, Junkyard, SD Cannabis, Toy Machine Co., Thorn St. Brew Bomb, and ONSOMESHIT.
We are favorable on the focus on the California cannabis opportunity and will monitor how the company’s brands are able to capture market share. California is the world’s largest cannabis market and Next Green Wave has secured strategic relationships to capitalize on this burgeoning opportunity.
A Vertically Integrated California Operation
Next Green Wave is a vertically integrated premium medical and recreational cannabis company in California with a fully operational state-of-the-art 35,000 sq. ft. indoor facility. The company is currently retrofitting the research and innovation facility that will host the extraction operation as well as facilitate the cloning process. Once the operation is at full capacity, Next Green Wave will be one of the largest premium cultivators in California and this represents an attractive growth opportunity.
The California company is highly focused on the cannabis brand and cannabis concentrate opportunity and we recognize that these are attractive verticals to be focused on. The margins and prices associated with cannabis concentrates are much more attractive when compared to cannabis flower and we are bullish on the cannabis brand side of the business due to the potential opportunity to bring these brands into new markets.
A Differentiated Growth Opportunity
During the last year, there has been a significant increase in the number of public companies that are focused on the California market. Due to this increase, we are looking for businesses that represent differentiated opportunities and believe that Next Green Wave meets this criteria.
One of the ways that Next Green Wave has been able to differentiate itself is through the development of a premium seed library that has more than 120 strains and includes several award-winning genetics and cultivars. We find this to be an important aspect of the Next Green Wave story and we expect it to play a major role in the success of the company’s products.
Another way that Next Green Wave has been able to differentiate itself is through its focus on the Colombian cannabis market. Earlier this year, the company signed definitive agreements pertaining to its previously announced decision to make a strategic investment in Organic Medical Growth OMG3 INC. (OMG), which is focused on producing and commercializing CBD products derived from medical and industrial cannabis in Colombia.
Through OMG’s current distribution channel of 7,300 pharmacies, Next Green Wave has attractive leverage to a bourgeoning cannabis market and find this to be an attractive investment. We have been bullish on the Colombian cannabis market due to the attractive economics associated with cultivating cannabis and will monitor how the team is able to execute on this. If the company is able to execute on this relationship, it could prove to be a major value driver for Next Green Wave and this is something we are watching.
Next Green Wave has also been able to differentiate itself by focusing on distribution. This is one of the most important areas to focus on and we have seen companies such as Aphria (APHA.TO) (APHA) report almost $100 million in quarterly revenue from distribution related activities. We are bullish on the distribution opportunity and will monitor how the company executes on its plan to sell products through its retail and wholesale network.
A Cannabis Expansion Story to be Watching
Although Next Green Wave has reported several transformational developments over the last few months, the shares have been trending lower with the cannabis sector and this is something that we are watching. We are impressed with the way the story has evolved so far this year and expect to see the company begin to start to generate revenue.
Last month, Next Green Wave strengthened its balance sheet and closed a non-brokered $2.75 million private placement with the Cannabis Growth Opportunity Corporation (CGOC). The proceeds will be used to advance the company’s strategic partner alliances in California and provide working capital to accelerate its operations. We expect to see the company use the capital to capitalize on the California market and will be monitoring the use of such proceeds.
At current levels, Next Green Wave is trading at a considerable discount to its peers and we are closely monitoring this opportunity. Going forward, we find the risk-reward profile to be attractive and believe that the company has several potential catalysts for growth. Next Green Wave is in the middle of a major transition and we expect the current weakness to be transitory.
We are bullish on the California cannabis market and will monitor how Next Green Wave is able to capitalize in this opportunity. To be added to our distribution list for Next Green Wave, please reach out to firstname.lastname@example.org.
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