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Technical420 State Series: Business Is Boomin’ In The Wolverine State

Apr 23, 2020 • 8:15 AM EDT
5 MIN READ  •  By Michael Berger
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In the next segment of our US cannabis market overview, we want to highlight the Michigan market. Michigan is one of the most recent states to have legalized recreational cannabis and is a market that we are excited about.

During the last year, we have noticed a substantial increase in the number of companies that are focused on the Michigan cannabis market. Although many people first think about Detroit when it comes to the Michigan market, there are a number of affluent suburbs outside of the city and we are favorable on the growth prospects that are associated with these areas.

From Ann Arbor to Grand Rapids, there are a hundreds of thousands of undergraduate and graduate students in Michigan. Similar to Boston, a large amount of the students who attend colleges in Michigan are considered to be affluent. The strength of such consumer in Michigan bodes well for the cannabis dispensaries that are focused on these markets and believe that our readers need to be aware of this.

Today, we want to highlight 3 cannabis companies that are highly focused on the Michigan market and believe that these are opportunities to be aware of. The legalization of recreational cannabis in Michigan has created a substantial opportunity for cannabis businesses.

Gage Cannabis: A Michigan Growth Story

Gage Cannabis is one of the best-known names in the Michigan cannabis market and is an opportunity that has been on our radar. One of the primary reason for the increased awareness for Gage Cannabis is related to the management team. When Canopy Growth (WEED.TO) (CGC) fired Bruce Linton as its Chairman and CEO, he became highly focused on the US cannabis market.

When we think about executives with a proven track record of success, Linton is one of the first names to come to mind. He joined Gage Cannabis as Executive Chairman and we are favorable on the experience that he brings to the team. Over the next year, we expect to see the company to benefit from the leadership, experience, and capital that Linton brings to the table and we find this to be significant.

Earlier this year, Gage announces that they will open Cookies, a new flagship cannabis dispensary in the heart of Detroit. Cookies is considered to be the leading lifestyle and cannabis brand in North America. We consider this relationship to be a major value for Gage given Cookies considerable brand power.

Gage Cannabis operates a large grow operation in Warren with plans for 13 total cannabis retail shops. Currently, its Adrian and Ferndale locations are open to sell medical cannabis and are preparing to start selling recreational cannabis soon. Gage will also open a Cookies-branded store and have licensed the popular cannabis brand from California rapper Berner.

We believe that Gage Cannabis has the necessary traits to be successful in the cannabis industry and will continue to closely monitor the operation. The company has an attractive growth prospects and a favorable risk-reward profile. We believe that Gage Cannabis is well positioned to capitalize on the Michigan market and is an opportunity to be aware of.

Chemesis International: A Midwestern Growth Story

Chemesis International (CSI.CN) (CADMF) represents a diversified growth opportunity that is focused on burgeoning cannabis markets in the US and abroad. We are excited about Chemesis due to the markets that it is focused on, the growth profile of the business, the leverage to the hemp and CBD market, and its impressive management team.

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. During the last year, Chemesis has increased market share in strategic markets in the US and created a footprint for growth in the Colombian cannabis market.

In late 2019, Chemesis formed a strategy to capitalize on the cannabis opportunity in the Midwest. The company is initially focused on the CBD market in Michigan and has plans to further expand its position in the Midwest. Over the next year, we expect to see the company expand into different verticals in the Michigan market and will monitor how the management team is able to execute on the opportunity.

Last year, Chemesis received hemp cultivation and processing licenses in Michigan. This represented an important milestone for the business, and we believe that the market does not associated much value to this aspect of the story. The move into Michigan represents a major step forward in the company’s planned expansion in the Midwest and we will monitor how the team continues to execute.

With a population of almost 10 million, Michigan represents a large market and will create additional awareness for Chemesis and its suite of proprietary cannabis products. The granting of hemp licenses in Michigan is just the start of a major expansion and the company plans to continue to evaluate assets and apply for licensing in Wisconsin, Illinois, Missouri, and Michigan.

Although Chemesis has been nothing short of an execution story, the recent trend has been to the downside and we believe that the market could be missing out on something significant. Going forward, we expect the business to report increasing revenues from the Michigan market and believe that the market underappreciates this aspect of the story. At current levels, we are of the opinion that Chemesis has a compelling valuation and a favorable risk-reward profile.

Innovative Industrial Properties: A Michigan Focused Cannabis REIT

Innovative Industrial Properties, Inc. (IIPR) is the only cannabis focused real estate investment trust (REIT) to trade on the New York Stock Exchange and is an opportunity that we have been closely following. During the last year, the company has reported several acquisitions of assets based in Michigan and we are favorable on the leverage that it has to the market.

After acquiring these assets, the cannabis REIT announced lease-back agreements with the company that sold the assets and we are favorable on how the business is structured. Innovative Industrial Properties is working with several leading US cannabis cultivators and retailers and we are favorable on this aspect of the story.

Innovative Industrial Properties is led by a management team that has a proven track record of success and we are favorable on how they have been able to drive the story forward. Over the next year, we expect to see the company announce several additional acquisitions and will monitor how the story continues to evolve during this time.

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Authored By

Michael Berger

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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