Earlier this month, we covered Cannara Biotech Inc. (TSX Venture: LOVE) (OTCQB: LOVFF) (FRA: 8CB) after it had entered into an agreement that provides it with an exclusive license to use, sell and distribute Exotic Genetix branded products in Canada.
For our readers who are unaware of Exotic Genetix, the leading cannabis brand is a 50-time award-winning United States (US) cannabis breeder, cultivator, and hash producer. Through the agreement, Cannara will also have access to Exotic Genetix’s knowledge and insights on cannabis strains and we are favorable on the opportunity for the business to bring a high-profile US cannabis brand to Canada.
During the last few years, the amount of unsold cannabis being destroyed by Canadian Licensed Producers (LPs) has significantly increased. We believe Cannara’s agreement with Exotic Genetix positions the business against the cannabis destruction trend and consider the relationship to be an attractive pillar of the story.
A few weeks ago, the vertically integrated premium cannabis producer published third quarter financial and operating results (which ended on May 31st) and we are bullish on the growth that was reported. Three statistics from the earnings report that we found to be significant include:
- During the quarter, Cannara reported a record amount of revenue, coming in at C$10.1 million for the period. This is the company’s fifth consecutive quarter of positive adjusted EBITDA and it reported approx. C$1.4 million of net income. So far in this fiscal year, Cannara has generated more than C$24 million of revenue
- The management continues to scale the business and currently has 6 of its 24 growing zones at the Valleyfield facility in full production. This amount accounts for 150,000 square feet of canopy which can hold over 55,000 plants that can be harvested four times per year
- Cannara has been highly focused on strengthening its balance sheet and we are favorable on how this aspect of the story has advanced. After the quarter ended, the company received a non-dilutive $50 million credit facility which was closed during the quarter and led by BMO Commercial Banking.
An Undervalued Cannabis Business with Catalysts for Growth
During the last year, Cannara has been nothing short of an execution story and we believe the market is undervaluing its potential. When compared to the prior quarter, the company reported a 60% increase in the number of kilograms sold which is substantially better than what was reported by large-scale Canadian LPs like Canopy Growth Corp. (Nasdaq: CGC) (TSX: WEED) or Tilray Brands Inc. (Nasdaq: TLRY) (TSX: TLRY).
While Canadian LPs like Canopy Growth and Aurora Cannabis Inc. (Nasdaq: ACB) (TSX: ACB) are closing facilities to be better aligned with the current supply-demand dynamic, Canara has been expanding operations. During the last few quarters, the company has evolved into one of the fastest growing indoor cannabis cultivators and has been capturing significant market share in Quebec.
We are of the opinion that Cannara is one of the most misunderstood cannabis operators in North America. After receiving approval to become a licensed vendor to the British Columbia Cannabis Store (BCCS), the business’ growth profile has further improved and we find the risk-reward profile to be one of the most attractive in the entire cannabis sector.
If you are interested in learning more about Cannara Biotech, please send an email to firstname.lastname@example.org with the subject “Cannara Biotech” to be added to our distribution list.