Last month, we published a report covering Vapen MJ Ventures (VAPN.CN) (VAPNF) and want to highlight this opportunity following the recent weakness.
Vapen has been capitalizing on the cannabis concentrate market in Arizona and recorded $8.4 million in EBITDA on $24 million in revenue in 2018. When compared to 2017, Vapen reported strong growth and this is a trend that we expect to continue. We expect the multi-state opportunity in the US as well as the international opportunity to be the primary growth drivers on a go-forward basis and are bullish on the markets that it is focused on.
In the US, Vapen is working to expand outside of Arizona through multi-state revenue and profit sharing agreements. Arizona represented a great market to initially be focused on and are favorable on Vapen’s ability to be successful in this major medical cannabis market. Arizona is the third largest medical cannabis market in the US and we expect the recreational cannabis market to open after the 2020 election. If recreational cannabis legislation is approved in Arizona, this will prove to be a major catalyst for the cannabis concentrate brand.
A US Cannabis Concentrate Execution Story in the Making
Vapen MJ has significant leverage to the US cannabis concentrate market and we find this to be one of the attractive verticals in the industry. Over the next year, the company plans to enter new markets and we are favorable on the growth prospects associated with the strategy to accomplish this feat.
One of the most important aspects associated with Vapen’s expansion strategy is related to the plan to form partnerships instead of acquiring businesses. When compared to approaching the expansion opportunity from an acquisition standpoint, this is a much less capital intensive strategy that keeps all parties fully vested in making sure the operation is as successful as possible. This strategy will allow Vapen to stay flush with cash in order to take advantage of growth opportunities as they appear.
Currently, Vapen is working to further expand its reach and is in negotiations with license holders in California, Oklahoma, and Massachusetts. These markets represent exciting growth opportunities for the company and we will monitor how the team is able to penetrate new markets across the US.
When it comes to catalysts from a revenue growth standpoint, the most significant opportunity for Vapen is related to the entrance into new markets. The management team has already proven itself to be very capable as it relates to the partnership opportunity and has entered into Nevada and Kentucky via strategic partnerships. These partnerships are expected to produce more than $20 million of wholesale refined CBD.
Brining Hemp To Hawaii
Last week, Vapen announced a new partnership to create a vertically integrated supply chain for Hawaiian hemp production and formulation with Archipelago™ Ventures, the strategic joint venture with Legacy Ventures and Arcadia Biosciences.
Legacy brings growth capital and strategic advisory in Hawaiian and Asian markets, as well as access to Legacy’s equity partner, Vapen CBD, a wholly owned subsidiary of Vapen MJ Ventures. As proven leader in extraction, product formulation and sales of cannabis oils and distillate products, Vapen CBD will be responsible for the construction and operation of Archipelago’s Hawaiian hemp extraction facilities. These facilities will give farmers an opportunity to convert their operations into high-grade CBD hemp production, creating new sources of jobs and revenue on the islands. First sales of superior hemp extract are expected in late 2019, in line with regulatory guidelines.
This partnership also brought former MLD star Shane Victorino into the fold as he is a managing partner of Legacy Ventures Hawaii. The newly formed company will provide a brand new agricultural segment to Hawaii and we are watching closely as this story progresses.
Highly Focused on the Burgeoning Cannabis Market in Las Vegas
When looking at these two markets, Nevada represents the most exciting opportunity and this is primarily because of Las Vegas. Last month, Vapen MJ signed a letter of intent with Pegasus to establish a partnership for the production and extraction of premium cannabis that is high in THC in Las Vegas. Pegasus operates a successful cultivation center that distributes its Virtue Brand cannabis products and we expect the brand to be complimentary to the Vapen Brand. The partnership will be producing high-margin cannabis concentrate products to be sold under the Vapen Brand to Nevada dispensaries and are bullish on the growth prospects associated with this.
The Las Vegas market represents a major opportunity for Vapen MJ from a brand awareness and from a revenue generating standpoint. On an annual basis, Sin City attracts more than 42 million tourists who come to visit from all over the world. When it comes to creating awareness with cannabis consumers, Las Vegas provides companies with a great opportunity to bring their brand to the people and we are favorable on the exposure provided by this market.
When a company is working to build a national (or global) brand, they need to be focused on several key markets. These markets are similar in the way that they attract tourists and bring the people to the brand. We are favorable on this strategy and believe it is a cost effective strategy for a company that is trying to reach the largest possible markets. We believe that Nevada will create awareness for Vapen and are bullish on the strategy in place for growth.
Recent Weakness Makes Vapen a Company to Watch
Although Vapen MJ has done a fantastic job at expanding into new markets, the shares have been under pressure and have been trading lower with the cannabis market. We believe that this pullback is worth watching as the company has significant potential catalysts for growth. With momentum approaching oversold levels, this is a company that we will have on our radar on a going forward basis.
We believe that Vapen has significant catalysts for growth and are favorable on the management team’s focus on execution. The company offers a premium product line that has a cult like following and has been nothing short of an execution story as it relates to executing on the Arizona medical cannabis market.
Going forward, we expect to see Vapen enter additional markets and expect revenue numbers to ramp higher as a result of this. The company is focused on some of the most attractive cannabis markets in the US and we expect its cost-effective strategy to pay off. This is an opportunity that we are excited about and will continue to watch.
Pursuant to an agreement between StoneBridge Partners LLC and Vapen MJ Ventures we have been hired for a period of 180 days beginning May 13, 2019 and ending November 13, 2019 to publicly disseminate information about (VAPN) including on the Website and other media including Facebook and Twitter. We are being paid $6,500 per month (VAPN) for or were paid “ZERO” shares of unrestricted or restricted common shares. We own zero (0) shares of (VAPN), which we purchased in the open market. We plan to sell the “ZERO” shares of (VAPN) 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 (VAPN) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.