Constellation Brands’ (STZ) $4 billion investment in Canopy Growth (WEED.TO) (CGC) has been a catalyst for the cannabis sector, especially for Canadian companies.
After this deal was reported, Canopy Growth CEO Bruce Linton said that he plans to use this capital for investments outside of Canada. The legal cannabis industry is an emerging opportunity and it will take some time for Canopy Growth to invest this much capital. We expect to see the company be patient with this capital and wait for the right opportunities.
Once the United States cannabis market opens up and becomes investible for companies like Canopy Growth, we expect to see a lot of capital enter this market from Canada. Although this is a long-term opportunity, it is one that is worth watching.
Sunniva: A Long-Term Opportunity
One company that would benefit from this is Sunniva (SNN.CN) (SNNVF), which is focused on the Canadian and United States cannabis market. The company owns strategic assets in California and is in the middle of a major expansion. In Canada, the company is advancing through Health Canada’s ACMPR application process and has a strategic relationship with Canopy Growth.
The focus on the United States and Canada is very attractive and makes Sunniva a differentiated opportunity. The company has already virtually de-risked its business model by leveraging strategic commercial real estate and merchant banking relationships to produce 100,000 kilograms of cannabis dried flower and trim at full capacity.
We are favorable on Sunniva due to the attractive business model, the leading management team, the strategic relationships and growth opportunities, the focus on creating value for shareholders, and the valuation.
An Underappreciated and Misunderstood Opportunity
2018 has been a major year for Sunniva and we expect 2019 to be even more significant. The company has been nothing short of an execution story and has significant advanced its business model during the last year. We are favorable on this and the company has proven its ability to execute at a very high level.
A combination of organic and inorganic growth initiatives has made Sunniva a stock to watch and we are favorable on the direction that the company is going in. Although the cannabis firm has be executing, the shares have come well off its highs and are trading at a very attractive level.
Sunniva has a number of levers for growth and we are favorable on the long-term growth prospects. Sunniva is building massive cannabis production facilities in California and Canada. The California facility will be completed in two phases and will have approx. 490,000 sq. ft. for cultivation.
Last month, Sunniva’s Canadian subsidiary, Sunniva Medical Inc. (SMI), acquired a 126-acre property, which will be the site of the Sunniva Canada Campus. SMI plans to build out more than 700,000 sq. ft. of cGMP greenhouses, which could produce more than 100,000 kilograms of premium cannabis flower a year plus higher margin extracted products such as capsules, cartridges, tinctures and creams.
A High Growth Opportunity
Over the last year, Sunniva has made strategic investments and acquisitions, which has been a catalyst for growth. In late May, Sunniva released first quarter financial results that showed strong growth from Natural Health Services (NHS) and Full-Scale Distributors, LLC (FSD).
NHS serves as the education vertical and currently has more than 95,000 active current patients and operates eight medical clinics and educational centers in Canada. FSD, through its brand, Vapor Connoisseur, is a provider of custom, private-label vaporizers and accessories. FSD currently serves the needs of over 80 brands in the North American marketplace.
We are favorable on the continued execution and the presence in North America. The relationship with Canopy Growth will prove to be a major value drive and we are bullish on the leverage to California. This is a company that has been flying under the radar and is worth watching.