During the last quarter, the cannabis sector has been under considerable pressure and this is an opportunity that we continue to closely monitor.
Although we are not surprised by the recent pullback, several companies are trading at or below its 52-week lows and we find this to be significant. We are focused on finding companies that own attractive cannabis assets and are trading at significant discounts to their peers. We have been laser focused on the US opportunity and want to highlight a company that has been flying under the radar.
The company, Stem Holdings, Inc. (STEM.CN) (STMH) has been executing on a major expansion that is focused on the US and emerging international markets. We believe that the company is one of the few US focused companies to be capitalizing on the international cannabis opportunity and find this to be significant.
Today, we have issued an update on Stem Holdings and believe that this is an opportunity to be monitoring. Although the company has significantly advanced its fundamental story so far this year, we believe that the market significantly underappreciates this. Once Stem Holdings is able to prove that there is value behind its portfolio of cannabis assets, we believe that the business will be due for a re-rating and believe that this would be a major catalyst for the stock.
Highly Focused on the International Cannabis Opportunity
In late May, Stem Holdings recorded a significant development and was awarded a research license to cultivate cannabis in the Caribbean country of St. Vincent & the Grenadines (SVG). Although the company has been primarily focused on the burgeoning cannabis opportunity in the US, it has been executing on the international cannabis opportunity and this is the second international market that Stem Holdings has leverage to.
When it comes to the opportunity in SVG, the research will be conducted in collaboration with and under the supervision of the Bureau of Standards and the Cannabis Research and Development Unit within the Ministry of Agriculture Forestry, Fisheries, Rural Transformation, Industry, and Labor. The company will have to construct a modern research facility for the cultivation of a variety of stains of cannabis that are high in CBD and low in THC.
In late 2018, SVG passed legislation to decriminalize cannabis for medical and scientific research purposes. This is an emerging cannabis market and we are bullish on Stem Holdings’ ability to gain a first mover advantage on this opportunity. The research license allows for the unlimited cultivation of both CBD Hemp and cannabis and the company’s facilities are expected to be operational by the first calendar quarter of 2020.
Once this facility is operational, it will only be producing and distributing Stem Holdings branded products and this could prove to be a significant growth driver. One of the reasons we are favorable on this location is due to the ability to expand to other emerging cannabis markets in Latin America. Over the next year, we expect to receive several updates about this initiative, and we will monitor how the team is able to advance this project.
In early April, Stem Holdings completed the acquisition of South African Ventures, Inc. (SAV) and we consider this to be a significant long-term growth opportunity. One of the reasons why we are excited about this asset is due to the joint venture that SAV has with Profile Solutions, Inc. (PSIQ). The joint venture has received preliminary approval to become the only licensed growing farm and processing plant for medical cannabis and industrial hemp in The Kingdom of eSwatini for at least 10 years. Another reason why we are favorable on this acquisition is due to SAV having a working capital surplus of approx. $11 million.
Upon issuance of related permits and the completion of construction, the joint venture will operate an advanced hemp and medical cannabis manufacturing facility to grow and cultivate cannabis in accordance with strict Good Manufacturing Practices (GMP) global health standards. The joint venture will also distribute hemp and medical cannabis within eSwatini, be the exclusive exporter within eSwatini for hemp and medical cannabis worldwide, operate a medical cannabis research and development lab, and build a training facility to create jobs for locals.
The facility will include a state-of-the-art research and development lab that is focused on genetic propagation and will be able to produce more than 12,000 kilograms of premium cannabis on annual basis. Unlike many other cannabis businesses and opportunities in this emerging market, the joint venture has already secured access to water rights, electricity, and banking for this project. We are excited about this and the company expects to start producing in the fourth quarter of 2019.
Enhances its Leverage to the US Cannabis Market
Last week, Stem Holdings announced a major development and completed the acquisition of Western Coast Ventures, Inc. (WCV), a California cannabis company. This acquisition is significant as it represents the fourth market in the US that the company has leverage to. We believe that Stem Holdings has advanced its leverage to the west coast of the US through this transaction as well as its acquisition of a significant Nevada asset.
One of the reasons why we are favorable on the acquisition of WCV is due to the joint venture that it has with ILCA Holdings which has been issued a limited Conditional Use Permit for a Marijuana Production Facility (MPF) in San Diego. This is a major market since the city will only be granting a total of 40 MPFs and we are favorable on the growth prospects associated with this opportunity. Stem Holdings expects production from the MPF to begin during the fourth quarter of 2019 and we will monitor how the team executes on this.
The facility is 10,700 sq. ft. and will feature leading technology for the cultivation, production, and distribution of cannabis. A complex, sophisticated, portable racking system will create a 10,000 sq. ft. canopy that has the potential to produce over 6,000 pounds of premium cannabis per year. The leverage to the California market is significant and we expect this asset to prove to be accretive in early 2020. Once this facility is operational, it should be generating significant cash flow and this is an opportunity we will be monitoring.
The Nevada cannabis market represents a massive opportunity and the Las Vegas tourism industry has been a primary growth driver. When Stem Holdings announced that it would be entering this market in early 2019, we became very interested in learning how it plans to capitalize on this burgeoning cannabis industry. Las Vegas attracts more than 45 million tourists on an annual basis and the cannabis industry has been a major beneficiary of this.
Stem Holdings plans to capitalize on this opportunity by initially opening a cultivation facility in Las Vegas and we are monitoring how the team is executing on this. We believe that the company has a significant opportunity to capitalize on the this market and are favorable on the location of the facility (just a few miles off the Las Vegas strip).
Earlier this year, Nevada’s Department of Taxation approved Stem Holdings’ change of ownership application for four medical and recreational cultivation and production licenses held by YMY Ventures LLC. This approval represents a major milestone since it was the final piece of its acquisition of 50% of YMY, an original Nevada cannabis licensee.
Stem Holdings expects YMY to manufacture approximately 100,000 units of medical and recreational cannabis edibles under the company’s award-winning brand, Cannavore. The company has also entered a licensed agreement with Grön Chocolate and Confections for the Nevada market, a top-selling edibles brand known for high-quality consumer packaged edible cannabis products. We are favorable on the growth prospects associated with this opportunity and will monitor how the team executes on this over the next quarter.
One of the reasons we are excited about this opportunity is due to the plans to have YMY’s Las Vegas facility produce premium cannabis flower by utilizing cultivation expertise powered by TJ’s Gardens and Yerba Buena, which are Stem Holdings’ most popular cannabis brands that have taken home 36 cannabis cups combined. We expect to see the company’s products generate significant traction in the Las Vegas cannabis market and this is an opportunity that we are closely monitoring.
A Growth Opportunity to be Following
In the back half of this year, we expect Stem Holdings to report several significant developments pertaining to the cannabis assets in the US and abroad. The company has been expanding its position in the US and are favorable on the leverage to major markets on the west coast. When Stem Holdings initially commenced operations, it was only focused on the Oregon market and has significantly advanced its fundamental story since then.
Over the next year, we expect to see Stem Holdings further increase its reach and is currently looking at opportunities in Massachusetts and Florida. We believe that these cannabis markets represent some of the most attractive cannabis opportunities in the US and will monitor how the team executes on this. In previous updates, Stem Holdings announced plans to enter the California market. The company has executed on this goal and we have a high conviction level when it comes to its ability to further expand into strategic cannabis markets.
We are bullish on Stem Holdings due to the significant potential catalysts for growth as well as the current valuation. During the last month, the shares have been under heavy pressure and Stem Holdings has an attractive valuation especially when compared to its peers. If you want to learn more about this opportunity, please reach out to email@example.com.
Pursuant to an agreement between StoneBridge Partners LLC and Stem Holdings (STEM) we have been hired for a period of 180 days beginning February 1, 2019 and ending August 1, 2019 to publicly disseminate information about (STEM) including on the Website and other media including Facebook and Twitter. We are being paid $7,500 per month (STEM) for or were paid “ZERO” shares of unrestricted or restricted common shares. We own zero shares of (STEM), which we purchased in the open market. We plan to sell the “ZERO” shares of (STEM) 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 (STEM) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.