Technical420 Deep Dive: Franchise Global Health (TSX:FGH)

Last week, the cannabis sector showed signs of life and several high-profile operators recorded strong moves to the upside. We attribute the rally to positive traction for legislation that would end the federal prohibition of cannabis in the United States (US) and will monitor how the bill is received by the House of Representatives.

Although we are bullish on the US cannabis industry, we continue to monitor the evolution of the cannabis industry in the European Union (EU). We are especially excited about the opportunity in Germany and believe the lack of saturation makes the region an attractive long-term opportunity.

During the last year, we have been working to identify companies that would benefit from the changing landscape of Germany’s cannabis industry and want to highlight a business that we expect to be one of the greatest beneficiaries of legalization in Germany and in the EU.

The company, Franchise Global Health, commenced trading on March 29^th, 2022 on the TSX Venture Exchange under the symbol “FGH”. Franchise has leverage to several of the most attractive cannabis markets in the EU and we believe our readers need to be aware of the opportunity. By already owning distribution infrastructure in 18 countries in the EU, we believe that Franchise has a first mover advantage on the region and consider this to be a core pillar of our thesis on the business.

During the last year, the management team has been flawlessly executing on a multi-national expansion strategy and we are favorable on its focus on increasing production and processing capacity. Some of the assets that Franchise has secured access to include:

1. In Ontario, Franchise has control of 500,000 sq. ft. of reserved cultivation capacity at a state-of-the-art EU GMP cultivation facility. The facility has already exported cannabis to Germany on numerous occasions and we are bullish on the company’s ability to increase production capacity as needed. The facility also has a 30,000 sq. ft. EU GMP processing facility which should prove to be an important aspect of the long-term story
2. In Germany, Franchise has access to a 90,000 sq. ft. EU GMP processing facility and we are bullish on the asset from a geographic standpoint. By having a processing facility in Germany, the business can easily expand into other countries, and we believe it will prove to be an important growth driver for the entire company.

In 2017, Franchise Global Health was granted the first medical cannabis license in Germany and sold the first gram of medical cannabis in the country. We believe the first mover advantage the business has in Germany will play a key role in the success of it and will monitor how revenue increases once production is at full capacity. .

We are bullish on the German cannabis market for several reasons and want to explain our reasons for this.

1. The recent change of leadership in Germany could significantly accelerate the legalization of recreational cannabis
2. More than 60% of medical cannabis patients in Germany are fully reimbursed by the government
3. According to a report from RBC, Germany’s medical cannabis market is expected to be C$1.2 billion by 2025.
4. From an economics standpoint, Germany’s cannabis industry is much more attractive that Canada. In Germany, a gram of medical cannabis costs approx. C$30 (according to MJBizDaily) which is considerably higher than Canada or the US. Franchise reported to be selling wholesale cannabis to German pharmacies for C$13.80 per gram and we are bullish on this.
5. We believe the current supply-demand dynamic for the cannabis industry in German is favorable for Franchise and expect the dynamic to improve over the next year

Germany Represents a Major Growth Market for Franchise 

Through the facilities that are reserved for Franchise, the company can scale the platform to more than 65,000 kilograms per year. The management team reported to have identified several low-cost strategic cultivation assets also in the pipeline and we are bullish on the potential of its multi-faceted growth strategy.

Franchise Global Health has been highly focused on the retail and the wholesale opportunity in Germany, and we consider this to be a core growth pillar of the entire business. On the retail side, the company has a significant foothold in Germany already and has already sold EU-GMP certified medical cannabis to over 1,200 pharmacies. Now, Franchise has the cultivation capacity to satisfy growing demand across Europe and other international markets and we are bullish on this. On the wholesale side of the business, Franchise s has pharmaceutical distribution networks and relationships in 18 countries, and we are favorable to the geographic diversity that is associated with this.

​​Franchise is well positioned to capitalize on the emerging cannabis industry in Germany and Europe. The management team has reported a series of strategic developments that leaves Franchise in position to supply and sell a steady stream of high-quality cannabis flower to a market that is experiencing supply and demand imbalances and has favorable economic conditions compared to North American markets.  Franchise has a significant foothold in Germany already having sold EU-GMP certified medical cannabis to over 1,200 pharmacies and now has the cultivation capacity in place to satisfy growing demand across Europe

A Global Cannabis Leader in the Making

To better explain the growth prospects that are associated with Franchise Global, we have broken down the business by countries.

1. Germany – Has a network of 1,200 pharmacies for cannabis sales and is selling more than 700 SKUs through their mass pharma distribution network across 18 countries in the EU. The management team plans to construct a world-class extraction facility and we are bullish on this market
2. Canada – Has 500,000 sq. ft. of reserved production capacity and 30,000 sq. ft. of processing capacity at EU GMP facilities that can scale to more than 65,000 kilograms per year
3. Portugal – The company has entered into strategic supply agreements and invested in a licensed cultivator in the country
4. Denmark – Franchise Global has Europe’s first legal and registered seed bank
5. Colombia – Has 100 acres of land to cultivate on which can be scaled to more than 22,000 kilograms of cannabinol (CBD) cannabis flower. ICA commercialization was attained Feb 2022 for a world class 19% CBD strain.
6. St Vincent and the Grenadines – Franchise Global partnered with a licensed cultivator which has a greenhouse on 1.25 acres and 5 acres for outdoor cultivation. The facility can scale to produce 27,00- kilograms per year and we will monitor how the asset helps the company over the long-term.

An EU Cannabis Company with Significant Growth Catalysts 

When compared to leading Canadian Licensed Producers (LPs), Franchise Global is trading at  a much lower multiple and find the risk-reward profile to be favorable at the current valuation. As the management team continues to execute on the EU, we expect to see increased interest in the opportunity and want our readers to be ahead of the curve with this opportunity.

During the last few years, several leading Canadian LPs have been working to capture market share in Germany and capitalize on its medical cannabis market. Due to the barriers to entry for Germany’s cannabis industry, several Canadian LPs gave up on the opportunity and divested EU assets for a fraction of what they were purchased for.

When we analyze any company, we first conduct due diligence on the management team and are favorable on the collective expertise of the Franchise Global Health team. Several members of the leadership team have been a part of some of the largest acquisitions of cannabis companies and we expect the experience from these transactions to play an important role with the success of the company.

We believe Franchise Global Health’sability to capitalize on the German medical cannabis market is a testament to the diverse expertise of the management team. From a human capital standpoint, we believe the company is led by executives who have their finger on the pulse of the global cannabis market and consider this to be one of the most important aspects of the story.

Another reason for our favorable view of the company is related to its leverage to the cannabis market in Israel. We consider Germany and Israel to be the two most attractive international markets and believe this is an important part of the Franchise story. Due to Franchise’ leverage to these markets, we expect interest in the business to rapidly increase as the story continues to advance and want our readers to be aware of this.

An Execution and Growth Story that is Trading for a Discount

When analyzing the markets that Franchise has leverage to, we are most excited about the opportunity for the core business in Germany and further expansion across Europe. We believe these markets are in the early innings of a major growth cycle and are bullish on Franchise’s strategy to become a leading cannabis operator in the EU and other high growth international markets.

Since inception, Franchise has raised more than $56 million of equity raised privately with no warrants and we are extremely impressed by its ability to raise money in a challenging market. From a leadership standpoint, the management team is comprised of executives with a proven track record in highly regulated markets. A few members of the leadership team have been a part of some of the largest acquisitions in the cannabis industry and we consider this type of experience to be invaluable.

This industry and capital markets experience from Franchise’s leadership team, clearly differentiates them from other cannabis companies and will serve them well as the company builds sustainable, long-term shareholder value through organic growth paired with potential accretive M&A to acquire and develop undervalued assets to add to Franchise’s already compelling investment thesis.

When you combine a growth company like Franchise with a sector that is trading at low valuations, we believe you have a recipe for success. Franchise possesses the traits that are needed to successfully capitalize on the global cannabis industry, and we believe our readers need to be aware of the opportunity.

If you are interested in learning more about Franchise Global Health, please send an email to support@technical420.com with the subject “Franchise Global Health” to be added to our distribution list.

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Pursuant to an agreement between StoneBridge Partners LLC and Franchise Global Health (FGH) we have been hired for a period of 180 days beginning April 1, 2022 and ending October 1, 2022 to publicly disseminate information about (FGH) including on the Website and other media including Facebook and Twitter. We are being paid $6,000 per month (FGH) and were paid “ZERO” shares of unrestricted or restricted common shares. We plan to sell the “ZERO” shares of (FGH) 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 (FGH) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.

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Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.

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