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Last month, we highlighted RavenQuest BioMed (RQB.CN) (RVVQF) as an undervalued Canadian cannabis producer. This came after a significant decline and we are favorable on the recent move higher.
Although the shares have come off their lows, we still consider the shares to be attractive as a long-term play. RavenQuest represents a differentiated opportunity due to its unique grow methodologies, the relationships it has with Fort McMurray First Nation #468 as well as the research partnership with McGill University.
Posited to Capitalize on a Burgeoning Market
The Canadian cannabis producer is in the middle of a major expansion and we are bullish on this. Once construction is completed, RavenQuest will able to produce approx. 51,000 kilograms a year. The existing properties have significant room to expand and we consider this to be a long-term growth driver for the company.
RavenQuest will be well positioned to capitalize on an undersupplied Canadian cannabis market. In October, Canada’s recreational marijuana market will open and this will create a major supply-demand issue. We expect to see a very undersupplied market, especially early on, and this will benefit producers like RavenQuest.
Although RavenQuest will not be a major producer early on, we are favorable on the growth trajectory. By the end of 2018, RavenQuest expects to be producing approx. 11,000 kilograms on an annual basis and will be able to capitalize on a market shortage. We are favorable on the capacity that will be coming online and will monitor how the team continues to execute.
RavenQuest has several levers for growth and this is an exciting aspect of the story. The management team has been working tirelessly, making sure that the company will hit its targets and projections. We are favorable on the management team’s ability to execute and will be monitoring this one.
An Significant Relationship with Fort McMurray First Nation #468
Last year, RavenQuest signed an agreement with Fort McMurray First Nation #468 to build a 24,000 sq. ft. facility. We are favorable on this relationship and view it as an attractive growth driver for the company. Over the next year, we expect the company to secure agreements with other Indigenous nations which will create catalysts.
On top of the increased production capacity, the relationship with the Indigenous nation adds a significant distribution network. We expect the agreement to open up new distribution outlets for RavenQuest and view this as an attractive aspect of the relationship.
We consider this relationship to be a future growth drive and are monitoring how this will add value to the overall business. The improved capacity and distribution are key value drivers and we will watch how the team executes on this.
An Undervalued Opportunity with Several Levers for Growth
RavenQuest is able to create value through its consulting/management services division. The company serves as a key adviser to extensive and reputable list of clients and provides end-to-end solutions for existing LPs and late-stage ACMPR applicant. The company is already generating revenue and producing positive cash flows through its services division.
We are favorable on the ability to generate revenue while waiting to complete a major buildout. This division sells proprietary, automated systems for growing, drying, monitoring designed specifically for cannabis yield maximization and delivers comprehensive, integrated solutions to cannabis companies.
When compared to other Canadian cannabis producers, RavenQuest is very undervalued and we are favorable on this due to the company’s value proposition. RavenQuest has a multi-faceted growth strategy that helps de-risk the business plan. We are monitoring how the team continues to execute and how the shares trade from here.
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