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Over the past six months, the cannabis sector has seen a significant increase in media attention and investor interest and this has caused more capital to enter the industry.
There are more than 350 cannabis-related firms that trade on United States and Canadian exchanges, including the New York Stock Exchange and NASDAQ. The vast majority of cannabis stocks, though, trade on the over-the-counter exchange, or pink sheets, which are regulated by FINRA.
In late 2013, there were less than 70 publicly traded cannabis companies; this significant increase has made it more difficult for investors to find value. We continue to prefer companies that are fully reporting with the SEC, that possess some competitive advantage over any potential competitors, that own valuable assets including intellectual property or patents, and that are led by a management team focused on creating value for their shareholders.
Although many investors are focused on the United States cannabis industry we continue to view Canada as the top place to invest. The reason why we are favorable on the Canadian cannabis industry is simple, it’s federally legal and regulated. Also, the Canadian government plans to legalize cannabis at the federal level in the spring of 2017 and this will be a major catalyst for licensed medical cannabis producers in Canada.
We want to highlight our favorite investments in the United States and in the Canadian cannabis industries to help investors focus on those we believe are industry leaders and attractive investment opportunities:
Canopy Growth Corporation (CGC: TSX) (TWMJF: OTC) continues to be our favorite long-term investment opportunity in the Canadian cannabis industry. The company was the first licensed producer in Canada and through its subsidiaries is licensed to produce 13,500 kg of dried cannabis and 6,700 kg of cannabis oil.
During the last month, Canopy Growth acquired Vert Médical, a Quebec -based ACMPR applicant. Canopy also acquired the lease to and the right to acquire 90 acres of land and a 7,000 square foot indoor growing and office facility in Saint-Lucien, Quebec.
Canopy also acquired majority ownership of Groupe Hemp, a company licensed by Health Canada to cultivate hemp and extract oil from hemp seeds. This strategic acquisition diversifies Canopy Growth’s business in a distinct but complementary market.
During the last two years, Canopy Growth has achieved a number of significant developments. From the acquisition of Bedrocan (a large licensed cannabis producer) to the launch of three medical cannabis strains under the Snoop Dogg brand, Canopy Growth continues to execute. We view the company as a long-term investment opportunity.
Emblem Corp (EMC.V: TSX Venture) will commence trading later this month (last week of November). We are extremely bullish on Emblem due to the following reasons: 1) Operates three distinct divisions which can create value for each other, 2) It recently completed a capital raise that was oversubscribed and the company has seen remarkably high interest from the marketplace, 3) The company started selling medical cannabis in August and we expect to see significant growth on a month-over-month basis, 4) It is led by a management team that has a proven track record of building successful multi-billion dollar companies, and 5) Its current valuation is attractive as we expect to see incremental growth on a year-over-year basis.
Emblem is led by its founders and a management team with a proven track record of success. Since its inception, management has invested over $6 million of their own dollars and executed flawlessly on its business plan to create a world class facility with best-in-class products. Because of this and combined with an excellent capital structure including over 1,000 shareholders, Emblem is incredibly attractive to the capital markets.
Emblem just closed its $23 million dollar raise which was very oversubscribed and we view the company as a very attractive opportunity when it starts trading. One of the most undervalued aspects of Emblem is its GrowWise Health division which serves as the company’s education vertical. GrowWise is operated as a joint venture between Emblem and White Cedar Pharmacy and is now seeing over 200 patients per month.
By early 2017, we expect to see the market catch on with Emblem’s potential and this has created an attractive investment opportunity for investors looking for a stock that has growth potential and can survive a recession
GW Pharmaceuticals (GWPH) is the bellwether of the cannabis industry and tends to benefit from any positive development. We continue to view GW Pharmaceuticals as the best long-term cannabis investment due to its deep pipeline of products, its successful FDA testing results, its Wall Street coverage, and its valuation as its shares are trading well below the average Wall Street price target. We continue to view GWPH as a buy opportunity.
Although GW Pharmaceuticals has built an incredible facility with state-of-the-art infrastructure to manufacture Epidiolex (the company’s most important product), what we are most impressed with is the caliber of the senior management team in charge of operations at the facility. Chief Operating Officer Chris Tovey has assembled an incredible team that includes Operations Director Manuel Loureda, who was previously with Genzyme and Merck.
Initially, GW Pharmaceuticals is focusing on two rare refractory epilepsy syndromes. We think this shortens the time to hit the market and decreases regulatory risk.
GW Pharmaceuticals has reported positive top-line results for the first Phase 3 trial of Epidiolex in Dravet Syndrome and two Phase 3 trials in Lennox-Gastaut Syndrome. We believe this data meaningfully de-risks both orphan indications as well as the remaining clinical development program. We expect to see Epidiolex launch in Dravet’s and LGS in the 2018 fiscal year.
OrganiGram (OGI.V: TSX Venture) (OGRMF: OTC) is one of our favorite Canadian investment opportunities. Health Canada recently amended its licensed sales capacity of dried marijuana to 1,200kg per year and also increased OrganiGram’s licensed production and sales capacity for cannabis oils to 500kg per year.
OrganiGram recently closed its acquisition of the industrial property adjacent to its existing facility in Moncton. The property includes a 136,000-square foot building on 10 acres of industrial land.
The board approved the initial buildout of approximately 70,000 square feet and this will increase annual production capacity to approximately 16,000 kg of flower and approximately 6,400 kg of fan and sweet leaf. This phase is expected to be completed and operational by the fall of 2017.
We consider OrganiGram to be one of the top investment opportunities within the Canadian medical cannabis industry and have had a favorable recommendation on the shares since they started trading in 2014.
Canabo Medical Inc. (CMM.V) commenced trading last week. The company owns and operates CMC Clinics, the largest chain of medical cannabis clinics in Canada. Since inception, CMC Clinics has seen more than 10,000 patients. CMC currently operates ten medical clinics with more than 40 licensed physicians. Canabo expects to operate out of 14 medical clinics by the end of the year.
Throughout 2016, Canabo has seen the number of new patients grow on account of its referral system which continues to see a greater than 40% conversion rate. We expect Canabo to continue to see strong patient growth on a month-over-month basis. By the end of 2016, the company expects to have more than 15,000 patients.
We are favorable on Canabo for the following reasons: 1) It has a proven track record of success when it comes to growing its patient base, 2) The company continues to see revenue growth on account of its rapidly growing patient base, 3) Its management continues to execute on initiatives and create value for shareholders, 4) Its partnership model should prove to benefit its existing business models, and 5) We are favorable on its leverage to a rapidly growing industry.
Although we are favorable on Canabo due to its operating structure as well as its position within a rapidly growing industry, the crux of our thesis is based on the company’s focus on big data. We think big data is a really significant and profitable opportunity as there is a MASSIVE need for consumer data.
Arcturus Growthstar Technologies Inc. (AGS: CSE) (AGSTF: OTC) is a company we became more favorable on now that Florida passed a ballot initiative to legalize medical cannabis
A few days before the vote, Arcturus signed a letter of intent to acquire a 10-acre operating greenhouse in a county in Florida that is designated to cultivate, process, and dispense cannabis. The company also said that the greenhouse meets Florida’s criteria for agricultural farmers looking to manufacture cannabis.
Arcturus CEO William Gildea said the property has been family operated since 1959 and currently grows ornamental plants. In the past 12 months, it has generated over $2,600,000 in revenue with EBITDA of over $400,000.
CEO Gildea added, “Once fully licensed and operational, the property has the capacity to generate 7 figures in revenue per month. In the interim we feel we can use our CEA technology to quadruple the current ornamental plant yields, thereby increasing both profit and revenue.”
Honorable mentions
- Aphria (APH.V: TSX Venture) (APHQF: OTC)
- Mettrum (MT.V: TSX Venture) (MQTRF: OTC)
- Aurora Cannabis (ACB.V: TSX Venture) (ACBFF: OTC)
- Kush Bottles (KSHB: OTC)
- Medicine Man Technologies (MDCL: OTC)
- MassRoots (MSRT)
- mCig Inc. (MCIG)
Important Investor Disclosures
Disclosure. Compensated Affiliate. This report was authored by and is property of StoneBridge Partners LLC. All information and data relied upon in drafting this report is publicly available. The author believes and considers its sources to be reliable, but does not guarantee the accuracy or completeness of any information contained in this report. Any and all information, data, analyses and opinions are provided for informational purposes only and is not intended, in any manner, as investment advice. Any projections or other information generated by StoneBridge Partners LLC regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. None of the material contained in this report is intended as a solution or offer to sell or purchase a specific stock or any other investment. This report is not directed to, or intended for distribution or use by, any person or entity that is a citizen, resident or located in any municipality, state, country or other jurisdiction where the distribution, publication, availability, or use of this report is contrary to any governing law or regulation. The securities discussed in this report may not be eligible for purchase and/or sale in certain jurisdictions or by particular individuals. It is important that you check any and all governing laws and/or regulations that may be applicable in your jurisdiction. Investing in securities of issuers organized outside of the United States, including ADRs, entail certain risks. The securities of non-United States issuers may not be registered with, nor be subject to the reporting requirements of the United States Securities and Exchange Commission. Please contact a Financial Advisor for professional advice regarding any and all securities investments. This report is intended for informational purposes only. StoneBridge Partners LLC’s officers, directors, employees, affiliates, or subsidiaries may have positions in securities covered by StoneBridge Partners LLC. StoneBridge Partners LLC receives compensation from the company and/or has a position in the securities mentioned in this report
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