Canadian pot businesses are simply flourishing, with economists expecting the cannabis market to grow into an $8 billion industry within just seven years. Although still paling next to the global opportunity, which is growing fast in its own right, the growth trajectory for Canadian weed shows no signs of slowing down well into the future.
Eight Capital, an investment bank based in Toronto, conducted recent analysis into the Canadian market. It puts the potential of exporting medical cannabis alone at a whopping $142 billion over the next quarter-century. Reputable cultivators, producers, and distributors with licenses are in the best position to take advantage of this generational growth opportunity and profit hugely from it.
Among the top producers, ABcann Global Corporation, (TSD-V: ABCN) (OTC: ABCCF), was one of the first licensed producers in Canada. Now, it has the reputation of one of the country’s premiere cultivators. Other competitors include Supreme Pharmaceuticals, Inc. (OTC: SPRWF) (TSX-V: FIRE), OrganiGram Holdings, Inc. (OTC: OGRMF) (TSX-V: OGI), iAnthus Capital Holdings, Inc. (OTC: ITHUF) (CSE: IAN), and Maricann Group, Inc. (OTC: MRRCF) (CSE: MARI).
Under strict regulatory laws enacted last year, Health Canada governs the licensing, monitoring, and compliance processes of companies producing medical marijuana commercially. It is difficult to qualify for and keep a license, as inspections occur frequently. Health Canada holds producers to extremely high standards and conducts a rigorous review of all applicants.
The state checks each applicant thoroughly to ensure regulatory compliance, and it inspects those it grants licenses to regularly to make sure they continue complying with strictures like clean manufacturing processes, security measures for personnel, shipping, packaging, record keeping, and crucially, import and export rules. International demand, particularly in Germany, is simply exploding.
For ABcann Global, Germany is the key that will unlock the gates to European and global markets. In speaking to Marijuana Business Daily, recent Chief Executive Officer Aaron Keay said, “We are absolutely at the forefront. We look at Europe as a significant part of our strategic plans for expansion, in addition to what we are doing domestically.” Keay now focuses on global operations exclusively.
He confirmed that ABcann Global has every expectation to acquire a license for distribution, and in the third quarter, begin exporting to Germany. The company is meticulous in its production of plant-based, pharmaceutical-grade medicines, which is why it is a leading exporter of Canadian medical cannabis products around the world.
Because ABcann Global approaches systems technology modularly, it is able to eliminate growth risk while expanding across the globe, and without compromising quality or consistency of product in any way. It maintains standards notably higher than required by the Canadian government, and to achieve this, it grows exclusively small batches to ensure predictability, controllability, and consistency of yields.
The company is able to grow high quality, dependable harvests by cultivating plants in a highly controlled environment and avoiding all chemicals and pesticides. The type of medical marijuana that ABcann produces guarantees the same pharmacological reaction with each application, and this is the consistency and quality required by those importing the products, especially in Germany, which pays for medical pot through its national health policy.
In a June 2 press release, as testament to ABcann Global’s quality, consistency, and international ambition, Cannabis Wheaton, a cannabis investment firm that supports a variety of operations, announced that it would inject $30 million into ABcann for its 130,000-square-foot cultivation facility, which expands its current operations.
Additionally, and under specific conditions only, Cannabis Wheaton also committed to constructing another 50,000 square feet at ABcann Global’s Kimmett facility. This funded production capacity, all 180,000 square feet of it, gives ABcann a major competitive edge over other licensed producers. The investment will arrive in two tranches, at C$2.25 a share. The pricing structure demonstrates a notable premium to the current $0.78 US, or roughly C$1.00, price per share.
Because ABcann Global represents a market capitalization of approximately $82 million, it offers Cannabis Wheaton a high value investment that should be the wish of any investor in this market. Market valuations of other licensed producers in Canada are much higher, but even at C$2.25 per share, ABcann still has coveted value in the market with others fetching valuations four times as much.
OrganiGram Holdings is one such company with a lofty market price. With a cap exceeding $233 million US, as opposed to ABcann Global’s $180 million US cap, the company will eventually have a growing capacity of 220,000 square feet for the production of medical cannabis. Despite having a federal license, however, Health Canada twice recalled all of OrganiGram’s products.
In 2016, Health Canada found residual traces of two prohibited pesticides, namely bifenazate and myclobutanil, in the company’s products. It suspended OrganiGram’s organic certification until it could prove compliance with regulatory requirements. The public recall included all products manufactured between February 1, 2016, and December 16, 2016, and included both cannabis oil and dried marijuana.
OrganiGram began fixing the problems immediately. It implemented all remedial measures. After losing an entire year’s worth of profits, the company is now operating in full again and still carries a market valuation of over $230 million US. Future forecasts for the Canadian medical marijuana market, and particularly exporting its products, are just too lucrative for investors to ignore.
With a market cap of approximately $250 million US, Supreme Pharmaceuticals has ambitions to become a leading large-scale supplier of medical cannabis. It is applying commercial agriculture practices to make its products as affordable as possible. The company expects to harvest an estimated $35 million in value this year, which is roughly 10,000 kilograms of cannabis.
At the end of last year, Supreme Pharmaceuticals raised $55 million using a convertible debenture model that pays 10 percent every year to investors until it matures in January 2019, which is when lenders can start converting to equity at $1.30 a share, which may be too dilutive. Maricann Group is another licensed producer growing the Canadian marijuana brand.
Maricann acquired its license back in 2014. It made its very first sale in 2015. Now, it is expanding all of its medical services to supply the Canadian adult-use market, as well. It is building larger facilities to accommodate required production capacity for its cultivation, extraction, analysis, and manufacturing endeavors. Maricann’s long-term goal is to supply mature and developing markets worldwide.
In August this year, Maricann reported a decline of 27 percent in its second quarter from last year, and a 42 percent decline compared to its first quarter of 2017. When attributing the shortfall, Maricann acknowledged its lack of environmental control, which enabled a March windstorm to blow sand into its greenhouses and destroy most plants inside.
IAnthus Capital Holdings has a different approach altogether. It is not a licensed producer, and as such, it uses iAnthus Capital Management, its wholly owned subsidiary, to offer investors diversified exposure to licensed growers, processors, distributors, and dispensaries in the United States. Currently, the subsidiary owns, runs, or is collaborating with license holders in Vermont, Massachusetts, New Mexico and Colorado.
Founded by several experienced entrepreneurs in corporate finance, investment banking, law, and healthcare services, IAnthus is able to provide its companies with both capital and operational expertise. The diversification, however, while restricting downside in the industry puts severe constrains on the potential upsides, which reflects noticeably in its measly market valuation of just $36 million.
Companies licensed and financed to operate in the Canadian medical marijuana space are uniquely primed to infiltrate a growth opportunity both generational and global in nature. Because licensed producers in Canada are mostly free from competition and well capitalized, they already have first-mover advantage in global markets widening daily as more countries legalize medical pot use.
As global medical marijuana markets bloom into a $142-billion industry in the next 15 years, some will make great fortunes. To maximize returns in this lucrative space, investors are actively searching for exposure to Canadian producers licensed to manufacture and export high-grade medical marijuana and cannabis products.