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Constellation Brands’ (STZ) $4 billion investment in Canopy Growth (WEED.TO) (CGC) has been a major catalyst for the cannabis sector and we are monitoring how this trend continues.
The sector has been in rally mode and cannabis stocks have been surging higher on strong volume. This is an exciting trend but one that has to be watched carefully. Today, we have highlighted three significant company announcements that were reported yesterday. We are monitoring these opportunities and believe that investors should be aware of these developments.
Namaste and GTEC Announce a Strategic Supply Agreement
Yesterday, GTEC Holdings Ltd. (GTEC.V) (GGTTF) was under pressure after signing a cannabis supply agreement with Namaste Technologies Inc. (N.V) (NXTTF). Under this agreement, Namaste’s wholly owned subsidiary, Cannmart, will purchase cannabis flower and oil from GTEC for resale on Cannmart’s on-line platform.
The supply agreement is consistent with GTEC’s strategy of diversifying its sales mix by pursuing supply agreements with a select group of partners. In addition to mitigating risk, this approach will support GTEC bringing additional production capacity on-line in 2018 and 2019. Furthermore, the agreement will facilitate the launch of products bearing trademarks from GTEC’s portfolio of premium quality craft cannabis brands.
The agreement supports Namaste’s strategy in aggregating high-quality cannabis products from leading Canadian LP’s. Furthermore, while many LP’s struggle to secure supply with the upcoming roll-out of recreational cannabis and with an anticipated short-term national supply shortage, Namaste has achieved a strong supply chain through supply agreements with multiple LP’s. Namaste’s e-commerce platform and technology will continue to drive innovation that will have a major impact on the way in which patients can access medical cannabis online.
We are favorable on this relationship as it will be able to create value for both companies and will monitor how the teams execute on this opportunity. Namaste Technologies has been laser focused on securing supply agreements and has been executing flawlessly on this. We were surprised by the market’s response yesterday and will keep an eye on how these shares continue to trade.
WeedMD: Continues to Execute and Focus on Distribution
Canadian Licensed Producers (LPs) were in rally mode yesterday and this benefited WeedMD Inc. (WMD.V) (WDDMF), which also made a significant announcement. The Canadian cannabis producer announced a purchase agreement with the Nova Scotia Liquor Corporation (NSLC) to supply its branded cannabis products for the adult-use cannabis market in Nova Scotia.
In addition to the NSLC, WeedMD has entered into cannabis supply arrangements with the Alberta Gaming, Liquor & Cannabis Commission (AGLC) and the British Columbia Liquor Distribution Branch (LDB). WeedMD has also entered into an agreement to become a medical cannabis supplier to Shoppers Drug Mart. The company is focused on achieving nationwide distribution at economic prices and remains in conversations with other provincial liquor boards.
WeedMD has been a stock to watch and one we have highlighted a number of times to our Premium Members. The shares were under considerable pressure after Hiku Brands (HIKU.CN) (DJACF) cancelled the proposed acquisition of WeedMD. We thought this weakness was overdone and the shares have been trending higher.
When compared to its peers, WeedMD is attractively valued and has significant upside potential. The agreements with the major provinces in Canada is a major value driver and we are keeping an eye on how the shares continue to trade.
CannaRoyalty Divests US Asset to Tidal Royalty
One of the prominent themes driving the cannabis sector higher is mergers and acquisitions, and this is a trend that we continue to monitor. Yesterday, CannaRoyalty (CRZ.CN) (CNNRF) announced that it would sell one of its United States assets to Tidal Royalty (RLTY.CN) (TDRYF), a leading provider of royalty financing to licensed U.S. cannabis operators.
Under the agreement, Tidal Royalty will acquire the company’s equity stake and royalty entitlement in AltMed for a consideration of $8 million. AltMed is a licensed cannabis business operating in Florida that exclusively manufactures and distributes a line of cannabis infused products marketed under the MÜV brand. NuTrae (doing business as MüV), is a subsidiary of AltMed and launched the MüV product line in the third quarter of 2016 exclusively in Arizona. As previously disclosed, CannaRoyalty holds an 6.14% ownership position in AltMed and has a 3.5% royalty on global net sales of the following MüV products: Transdermal patches, metered dose inhalers, and patent-pending transdermal gels.
Going forward, CannaRoyalty will maintain the right to license MÜV products in California, Nevada, Canada and other select markets. The market responded favorably to this announcement and we are monitoring how the shares trade from here. CannaRoyalty has been laser focused on the California cannabis market and we think this is a smart market to focus on.
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