NEW YORK, November 21, 2017 /PRNewswire/ --
For 17 years Canada has provided legal access to medical cannabis to its citizens, and now the country is expected to legalize recreational marijuana by July 2018. With sales of Canadian medical cannabis projected to exceed $8 billion by 2024 (http://nnw.fm/bEi4r) and the recreational market estimated to be worth over $18 billion annually (http://nnw.fm/x49Ay), investment capital has been pouring into Canada's licensed producers (LPs). Though the demand for cannabis is projected to exceed 600,000 kilograms a year (about 1.3 million pounds), Canada's LPs currently only cultivate about 20,000 pounds of dried marijuana annually. This immense impending imbalance is a magnet for serious capital investment. It also presents enormous domestic opportunities for one of Canada's premier producers, ABcann Global (TSX-V: ABCN) (OTC: ABCCF) (ABCCF Profile), which produces only organically grown, pesticide-free, standardized product and produces among the highest yields within the Canadian sector. Other publicly traded cannabis companies vying for position include Cronos Group Inc. (TSX-V: MJN) (OTC: PRMCF), Maricann Group Inc. (CSE: MARI) (OTC: MRRCF), Emblem Corp., (TSX-V: EMC) (OTC: EMMBF), with cannabis finance company, Cannabis Wheaton Income Corp. (TSX-V: CBW) (OTC: CBWTF), looking to profit by injecting capital into select growers.
Canada's initial objective in recreational legalization is to eliminate criminal elements that made a fortune trafficking in marijuana. By getting marijuana out of the black market and into a regulated environment, Canada will generate significant tax revenues and enable it become the first developed country in the world to legalize recreational use. Managing the complexities of integrating the programs will be a delicate balance, but despite the challenges, suppliers are optimistic that legal recreational sales will be a reality by summer. Once fully implemented, Canada could be in the enviable position of being the only regulated producer of marijuana products in the world. In the interim, money keeps streaming into licensed suppliers; $685 million in investment capital was infused into publically traded licensed producers last year and this year looks to be even bigger. In November, Constellation Brands, a major beer and wine distributor in the United States, pumped $245 million into Canadian licensed medical marijuana growers (http://nnw.fm/Dl3Ew).
To become a licensed producer is a marathon exercise in bureaucracy that can take up to three years, with only 3% of applications ultimately approved. Health Canada conducts thorough reviews of applications, ensures compliance, conducts frequent inspections, and enforces stringent standards. A pioneer in Canadian medical cannabis, ABcann Global (TSX.V: ABCN) ( OTCQB: ABCCF), has been licensed in good standing since 2014 with no history of product recalls, and proprietary computer-controlled production systems that have bolstered the company's reputation for its consistent pharmaceutical-grade cannabis. Recognizing early on that if the plant was to be effectively utilized as medicine, production had to be standardized from batch to batch, year-over-year, ABcann took an unprecedented scientific approach to medical cannabis production and established a $1.5 million research contract with the University of Guelph, a world leader in controlled environmental growth systems. The scientific collaboration led to ABcann's proprietary cultivation methods that produce the highest consistent quality cannabis with yields that double the industry standards. Precise computer control of every possible variable allows ABcann to reliably homogenize the environmental experience so each plant reacts and produces the exact same medical compounds each and every grow cycle. The success of company's proprietary technique is reflected in its 94.7 percent customer retention rate, 30 percent month-over-month customer growth and its current yield rate which is nearly double the industry average (http://nnw.fm/w1vUW). ABcann's scientific approach to medicine has established the company as an industry leader for quality and consistency and a reputation for pharmaceutical-grade products, a crucial factor to capitalize on international market opportunities. The company's modular approach to systems technology mitigates start up risks while ensuring consistency and product quality anywhere in the world. ABcann is already tactically targeting Western Europe.
ABcann's success didn't go unnoticed. The company went public in May 2017, raising nearly $12 million in a private placement and another $25 million in debentures. Shortly after, PI Financial pegged a one-year share price target of $2.25 (USD). ABcann recently announced the receipt of $11.9 million in proceeds from the exercise of warrants, and with a significant investment from Cannabis Wheaton Income Corp. (TSX.V: CBW) ( OTCQB: CBWTF), brings ABcann's current cash position to about $45 million today. Priced significantly above market, ABcann announced on in August (http://nnw.fm/aVAL7) the close of an initial $15 million investment by Cannabis Wheaton, which has raised over $85 million in the last six months, funds licensed or nearly licensed cannabis producers with smart money, brings in experts to evaluate budgets, and injects capital at important development phases.
Once facilities are producing, Cannabis Wheaton gets a royalty on the sale of one-third of the output, which it negotiates to purchase at direct cost. Chuck Rifici, Cannabis Wheaton's CEO, commented on the investment, "This now adds a sixth license to the Cannabis Wheaton portfolio, and our first publicly traded producer with a sales license. Over the past three years, I've watched ABcann's involvement and evolution in the Canadian cannabis industry. They are widely recognized for their proprietary cultivation methods that produce high quality cannabis with industry leading yields."
This initial investment is only part of a larger $30 million phased investment for construction of an additional 50,000 square feet of pure cultivation space next to ABcann's current 14,000-square-foot cannabis cultivation facility in Ontario, Canada. ABcann's second production facility, its 65-acre Kimmett property, has construction plans for a 100,000-square-foot purpose-built facility taking production capacity to 20,000 kilograms per year and positioning ABcann for hyperbolic expansion in the Canadian cannabis industry.
Others vying for market position include Maricann Group (CSE: MARI) ( OTCQB: MRRCF), which is expanding its cultivation, extraction and production facilities, has raised in excess of $60 million over the last year, some of which was at a $250 million pre-money valuation. However, the company reported that Q2 sales declined by 27% from previous year levels and down 42% compared to Q1. Underscoring the importance of environmental controls, Maricann attributed the shortfall to a March windstorm that allowed sand to enter its greenhouses and ultimately caused destruction of all impacted plants. Since going public less than a year ago, Emblem (TSX.V: EMC) (OTC: EMMBF) has attracted nearly $27 million in fresh capital and has the same size growing facility as ABcann's current facility. Cronos Group (TSX-V: MJN) (OTC: PRMCF), which operates two wholly-owned licensed producers collectively situated on more than 125 acres of agricultural, licensed land, has garnered over $80 million in debt and equity financing in just the last three months.
Smart money continues to pour into Canadian LPs at an unprecedented rate, and appears to be on the upswing. Obvious initial indications would be for the forthcoming legalization of recreational use. There's certain to be a bonanza of opportunity upon implementation, but smart money capitalizes on not only the impending obvious but also on strategic longer-term considerations. Select Canadian medical cannabis companies will be uniquely positioned to capitalize on gigantic global growth opportunities. Investors seeking substantial capital appreciation should strongly consider following the smart money.
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