As Recreational Cannabis Legalization Looms, the Field of Opportunity is Green for Canada’s Leading Growers
Medical cannabis use has been legal in Canada since 2001, and Canada is now working to become the first industrialized nation to input a comprehensive system permitting the recreational use of marijuana. Sweeping legislation has been introduced by the Canadian government that takes aim at permitting nationwide recreational cannabis use by July 2018—a move applauded by companies that are currently licensed to produce medical marijuana in Canada or are engaged in providing services to growers—companies like ABcann Global Corporation (TSX.V: ABCN) (OTCQB: ABCCF) (ABcann Profile), which recently closed a milestone financing agreement with Cannabis Wheaton Income Corp. (TSX.V: CBW) (OTC: KWFLF), an investor and supporter of cannabis cultivation companies, Canopy Growth Corp. (WEED: CN) (OTC: TWMJF), Aphria Inc. (TSX: APH) (OTC: APHQF), and Aurora Cannabis Inc. (TSX: ACB) (OTCQX: ACBFF).
Despite the widespread legalization of medical marijuana in Canada, the licensing requirements for cannabis growers are incredibly strict, with only 3 percent of the growers who apply for licensing obtaining approval. ABcann Global was one of Canada’s very first companies to successfully obtain licensure to produce medical cannabis. Under Canada’s Marijuana for Medical Purposes Regulations, ABcann obtained its production license in March 2014, followed by the successful attainment of a cannabis sales license in December 2015.
ABCann went public in May 2017 with an IPO priced at $0.80 per share, and PI Financial analyst Jason Zandberg quickly initiated coverage with a one-year price target of $2.25 (USD). As of Aug. 21, 2017, ABcann’s price was at $0.90 (CAD) and $0.73 (USD); its market cap was at $89.664 million (CAD), $72.727 million (USD); and the company’s YTD return was 275.00%. The company’s annual production capacity is currently at 1,000 kg, and build-out plans presently in motion would increase that to an estimated 20,000 kg.
Though ABcann is still young as a publicly traded security, the company has become one of the foremost medical cannabis growers in Canada, standing out with its proprietary growing technology, which results in the production of top-quality, organically grown, pesticide-free medical-grade cannabis. ABcann’s low current market cap presents a clear opportunity for investors—particularly when contrasted with the company’s Canadian cannabis peers, which, as previously mentioned, are few in number. There are currently only 54 licensed cannabis producers in all of Canada1.
Comparable competing companies with much higher prices and market caps than ABcann include Canopy Growth Corp., which, as of Aug. 21, was at a price of $8.51 (CAD) and $6.79 (USD) and had a market cap of $1.436 billion (CAD) and $1.143 billion (USD); Aphria Inc., with a price of $5.73 (CAD) and $4.57 (USD) and a market cap of $795.436 million (CAD) and $634.405 million (USD) as of Aug. 21; and Aurora Cannabis Inc., with a price of $2.42 (CAD) and $1.93 (USD) and a market cap of $887.615 million (CAD) and $707.891 (USD).
ABcann’s growth potential is indisputable. Within just three months as a publicly traded company, ABcann has raised $43 million in cash, which has enabled the company to rapidly carry out its expansion strategy and business model. Recent financing from cannabis streaming company Cannabis Wheaton Income has positioned ABcann to grow at a rate unprecedented in Canada’s marijuana market. Cannabis Wheaton, which invests in and supports a broad range of promising marijuana cultivation companies, announced near the end of July that it has obtained Exchange approval to purchase $30 million of ABcann Global common shares with a $15 million cash tranche. The initial investment of $15 million is part of a larger phased investment to construct additional square footage of pure cannabis cultivation space adjacent to ABcann’s current 14,500-square-foot cultivation facility in Ontario. ABcann has confirmed that its plans to commence construction at the company's Kimmett facility in Q3 2017 remain on track, and the previously announced plans for a 71,000-square-foot phase 1 plan have been expanded to 100,000 square feet.
In producing its medicinal cannabis, ABcann employs a proprietary plant-growing technology that includes the use of environmentally-controlled chambers that can monitor and regulate all variables during the growing process. Through a partnership with the University of Guelph, ABcann has mastered mass yield techniques and has developed, at is production facility in Napanee, Ontario, a pioneering, computer-controlled environmental system that duplicates natural growing environments. This controlled indoor system combines scalable growing chambers, LED lighting, and organic fertilizers and soil while simultaneously eliminating toxins and pesticides. All aspects of the process are monitored and controlled, resulting in consistent, high-quality plant production in mass quantities.
Thanks to the company’s innovative approach and systems, ABcann is able to produce organically grown and pesticide-free, high-yielding cannabis plants that produce top-quality products that are consistent with each new batch. The company can control both environmental and nutrient demands to create particular strains of cannabis, free of the variation that is so common when large quantities of marijuana are produced in less-controlled, larger rooms and in greenhouse-type environments. This modular approach to systems technology eradicates scale-up risk and enables ABcann to locate its operations anywhere in the world while maintaining consistency and product quality.
In addition to its Canada operations, ABcann is pursuing opportunities in Germany, Australia and other jurisdictions and is also endeavoring to develop multiple delivery vehicles.
ABcann compares impressively with other companies in Canada’s explosive medical cannabis industry—companies with much higher market caps and prices. With Canada on the verge of blanket legalization of marijuana, the opportunity for investors is clear. In a country where stringent licensing standards have made cannabis growers few and far between, ABcann is a standout marijuana player to be reckoned with.
(1) Government of Canada: http://nnw.fm/2ehJD
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