The legal cannabis industry is the fastest growing industry in the world, and we have been closely covering this burgeoning industry since early 2014.
During the last year, the cannabis industry has recorded incredible growth, and this is a trend that we expect to continue. The reason why we expect to see massive growth on a go forward basis is due to a change in regulations that has led to an increase in the number of recreational cannabis markets as well as the opening of new medical cannabis markets.
Although the cannabis sector represents an attractive growth opportunity, we have seen more than 100 new cannabis listings during the last year and this has made its more challenging for investors to identify leading players in this space. We have been closely following the performance of these new listings and the results are not as positive as expected.
Even though these new listings are exciting, we believe that it is important for investors to focus on companies that have been executing on previously announced initiatives and have been gaining market share in the burgeoning cannabis industry. When we are looking at the cannabis industry on the company level, we are targeting companies that possess these traits, that are attractively valued, that are led by a management team with a proven track record, and that have significant growth prospects.
Last month, we met with the management team of Wildflower Brands (SUN.CN) and were very impressed with this operation. The company is highly levered to the burgeoning cannabis industry in Canada as well as the United States and is one of the few companies to have legitimate leverage to these markets.
During the last year, Wildflower Brands has significantly advanced its fundamental story and has expanded into several new markets in the United States. The company has also significantly advanced its Canadian operations and we believe that this opportunity has been flying under the radar. When we look at Wildflower Brands, there are a number of factors that make us excited about its growth prospects, including:
- Wildflower Brands has significant growth prospects as it relates to the North American cannabis opportunity and we are bullish on this
- The company is led by a management team with a proven track record of success that has been focused on creating value for shareholders
- When compared to its peers, Wildflower Brands has an attractive valuation and we are favorable on its risk-reward profile
Wildflower Brands has been Flying Under the Radar
Wildflower Brands was one of the first cannabis companies to go public and the shares started trading on the Canadian Stock Exchange in June 2014. One of the reasons we are excited about this opportunity is due to the way the company has been focused on execution instead of on promotion. After years of working tirelessly, Wildflower Brands can let its story speak for itself and we are excited to provide an update on the burgeoning North American cannabis company.
Currently, more than 300 stores in the United States carry Wildflower-branded cannabis products. More than 200 of the stores are located in Washington State and the company also has a significant presence in California and New York. When it comes to being focused on attractive cannabis markets, Wildflower Brands has had its finger on the pulse of the market and we are bullish on the markets that it is levered to.
Going forward, we expect to see Wildflower Brands continue to penetrate the United States cannabis market while it also expands its reach in Canada. The company recently announced a major acquisition of a cannabis retail operation in Vancouver and we find this to be significant. This is one of the most attractive Canadian cannabis markets and we expect this focus to be a major growth driver in the near future.
An Attractive Operating Structure
One of the reasons we are favorable on the Wildflower Brands is due to its attractive operating structure. The business is comprised of three divisions and is focused on distribution in California through King Extracts, the global CBD market through Wildflower, and the cannabis product and accessory market in Los Angeles through Exclusive.
Through a series of inorganic and organic growth initiatives, Wildflower Brands has been able to enhance its fundamental story and we are favorable on its growth strategy. In 2017, the company acquired King Extracts and this acquisition has given Wildflower a platform to launch into the California market. In 2018, Wildflower Brands acquired all licenses for seed-to-sale in the City of Los Angeles and California and we are favorable on how it has been able to advance this business post-acquisition.
Another exciting aspect of the Wildflower Brands story is related to the relationships that it has formed. In December 2018, the company announced a major milestone and launched its delivery service in Los Angeles. Wildflower is hiring dozens of delivery drivers and is licensing technology from Eaze to help route deliveries efficiently, manage inventory and comply with state law.
We are favorable on this approach and the relationship with Eaze, which is the largest cannabis delivery service in the United States. During the last year, Eaze has been able to dominate the California market and we believe that much of its success is related to its technology. The platform is easy to use and we are favorable on Wildflower’s opportunity to create value for shareholders by developing a cannabis delivery business that complies with California law.
Vancouver Represents a Significant Opportunity for Wildflower
In early April, Wildflower Brands reported a massive development and entered into a non-binding letter of intent to acquire City Cannabis Corp., a premier licensed cannabis retailer in British Columbia, in an all-stock transaction. Shortly after this announcement, the City of Vancouver has approved and issued a building permit for City Cannabis Co’s 2317 Cambie Street location. This development was significant as City Cannabis is on track to open their third Vancouver location and is planning to open this summer.
City Cannabis is holding two of the three Vancouver licenses to sell cannabis and is the only company with multiple licenses in the Province of British Columbia. We are favorable on the letter of intent to acquire the cannabis retailers and this could prove to be a transformational acquisition. City Cannabis has been profitably operating various dispensaries in Vancouver since the city started licensing cannabis retailers. City Cannabis has multiple cannabis retail license applications that have been submitted in British Columbia. We expect this acquisition to be immediately accretive once it closes and this is something we are watching.
The Cambie Street location is located is one of the most highly trafficked areas of the city and we are favorable on this aspect of the story. We expect this location to benefit from heavy foot traffic and will monitor how the team executes on this. This acquisition is quickly proving to be strategic and we are bullish on the growth prospects associated with this transaction.
Expanding into the European CBD Market
During the last year, the European cannabis market has become an area of major interest and we are not surprised by this due to size of this market. With a population of 600+ million, Europe is almost twice the size of the United States and the cannabis industry is much less saturated. Currently, the average price for cannabis is much higher in Europe and this has benefited the companies that are levered to this market. When it comes to the European market, the cannabidiol (CBD) market represents a massive market and we are favorable on the companies that are levered to this trend as well.
In late March, Wildflower Brands signed an agreement with Two Towers to expand the Wildflower Wellness brand’s CBD+ line of products into Poland. Two Towers is a major wholesale prescription medical and over the counter wellness distribution company in Poland which is an extension of Omega Rex, a group of 14 pharmacies around the central capital region of Warsaw.
We are favorable on this relationship and expect this initiative to be a major value driver for both companies. Poland represents a great starting point for Wildflower, and it has received tariff codes for the importation of its products into this market. We expect the company’s products to be in high-demand and are bullish on this opportunity.
The European CBD market is already a multi-billion-dollar market and we are favorable on its growth profile. The Brightfield Group recently announced market intelligence stating that the European CBD market will boom with 400% growth through 2023. We are favorable on Wildflower Brands’ leverage to this market and will monitor how the team executes on this.
Executing on the United States Market
2019 has been a banner year for Wildflower Brands which started off the year by announcing the opening of its first Wildflower by Bridges General store in Lower Manhattan. This represents a significant opportunity and will monitor how the New York market supports growth going forward.
Currently, Wildflower Brands is distributing products to more than 20 retail locations in New York and we expect this number to increase. Through Wildflower’s relationship with The Alchemist Kitchen, a well-respected wellness brand, the store has exclusive product offerings in addition to the full lineup of existing Wildflower Wellness CBD+ products. We are favorable on this relationship as it enhances the types of products that are being offered in the store as well the exposure it provides Wildflower in the NY market.
Out of the markets that Wildflower Brands is focused on, we are most excited about the opportunity in California. The company has 14 vertically integrated licenses (state and city) in California. Wildflower Brands has an emerging cannabis delivery business (licensing the technology from Eaze) and we expect to see the company further penetrate this market.
When it comes to the California cannabis market, we are favorable on the strategy that Wildflower Brands has to increase market share. Through strategic relationships and a delivery service platform, the company has a number of avenues for growth and we believe that the market under-appreciates this.
Currently, Washington State represents the most significant market for Wildflower Brands as it is distributing branded cannabis products to more than 200 retailers. Over the next year, we expect the California market to become the most significant market for Wildflower Brands and we are favorable on the potential catalysts for growth.
An Opportunity to be Watching
During a time where more than 20 public cannabis companies are valued are more than $1 billion, Wildflower Brands is flying under the radar and has a market cap of approx. $50 million. We believe that the company has significant potential catalysts for growth and are favorable on the acquisitions that it has made.
Wildflower Brands has attractive leverage to several burgeoning cannabis markets in the United States and we are favorable on the growth prospects associated with this. The pending acquisition of a Vancouver licensed cannabis retailer is significant, and we believe that this could be a transformational transaction for the company.
Over the next year, we expect to see Wildflower Brands significantly advance its fundamental story and believe that this is an opportunity to be watching. The company has massive growth prospects and if you want to learn more about this opportunity, please send an email to firstname.lastname@example.org.
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