LONDON, May 16, 2018 /PRNewswire/ --
The clock is ticking down. In August 2018,
Licensed cannabis growers only have about 60,000kg per year of capacity. That's well short of the 900,000 kg Canadians are expected to consume in the first 12 months after legalization. Mentioned in today's commentary includes: Innovative Industrial Properties (NYSE:IIPR), AbbVie Inc (NYSE:ABBV), Zynerba Pharmaceuticals (NASDAQ:ZYNE), Insys Therapeutics (NASDAQ:INSY), Compass Diversified Holdings (NYSE:CODI).
For companies like Cannabis Wheaton (CBW; CBWTF) that can help plug the supply gap, this represents a huge opportunity. After introducing the world's first "cannabis streaming" model in 2017, they now have exposure to effectively 2,000,000 square feet of cultivation space.
Here are five reasons why the world is watching Canada very closely.
#1 The Great Canadian Marijuana Explosion
In November 2017, the proposed Cannabis Act was passed by the lower house of the Canadian Parliament and is now with the Senate. It is expected that the law will be fully enacted by the end of summer, 2018, opening all of Canada to legalized cannabis.
The economic impact is predicted to be truly massive. For companies like Cannabis Wheaton, it's possibly a once in a lifetime opportunity.
Right now, licensed producers in Canada only provide about seven% of the potential recreational demand, serving a medical marijuana patient base of 300,000 people. With full legalization in place, Deloitte estimates the total economic impact of the industry could be $22.6 billion annually - more than the combined sales of beer, wine and spirits.
The most recent data by Marijuana Policy Group asserts that demand for recreational cannabis in Canada will be much stronger than expected. It could exceed 900,000 kgs next year.
Cannabis Wheaton, thanks to its streaming model, access to capital and market expertise, is well positioned to exploit the need for future expansion. And, with legalization going global - CBW could become a future cannabis "multi-national", serving consumers around the world.
#2 A Unique Streaming Business Model
Cannabis Wheaton (CBW; CBWTF) is the first company to propose "cannabis streaming" - bank-rolling the growth plans of licensed producers in exchange for equity and a steady stream of royalties or taking possession of a portion of the actual pot.
CBW has signed partnership agreements with 17 facilities across six provinces, with a combined 2.0 million effective square feet of cannabis growing space. The company also has partnerships with 39 clinics, with access to over 30,000 registered medical marijuana patients.
They also have tremendous diversification. Cannabis Wheaton is building a pan-Canadian network of streaming partners - including producers and distributors.
Additionally, Cannabis Wheaton recently launched its "Wheaton Licensing Program," to assist applicants wishing to become Licensed Producers with knowledge of the market. Think of it as an "incubator" for potential cannabis producers and distributors, all of which could be future streaming partners or acquisition targets.
#3 "Downstream" Leverage
Through 2021, Cannabis Wheaton (CBW; CBWTF) expects to capitalize on the massive supply shortage in Canada's newly legalized markets. Eventually - however - supply will catch up with demand. In response, the company is aggressively climbing the value chain. The structure they use to talk about this system is the oil and gas terminology of upstream, midstream and downstream.
Upstream is all the cultivation - where they collect royalties from their streaming partners or can take physical possession of the cannabis to sell into a higher value channel where higher margins can be captured.
Midstream is where the product goes after it leaves the grow facilities. Edibles, beverages and other innovative formats are increasingly popular and today account for at least 50% of products consumed in recreational U.S. states like Colorado and California.
Downstream is straight to consumer distribution channels. CBW has split these efforts into three channels: medical, domestic retail, and international.
They've also partnered with Province Brands - which aims to become the first company to develop a premium line of beverages brewed exclusively from cannabis. The agreement will give Wheaton a 10-year exclusive relationship with the nation-wide store chain for medical cannabis distribution.
Cannabis Wheaton also have their eyes set on emerging legal markets in Latin America. In January, they announced the acquisition of 80% of Uruguay cannabis company Inverell - which produces high grade CBD oil at incredible margins.
#4 Broad Access to Capital
In November 2017, Cannabis Wheaton completed a private placement of convertible debenture units for $35 Million in additional capital. Following that in January 2018, the company raised an additional $100 million through another offering of convertible debentures.
Cannabis Wheaton recently announced a $10 million debt financing deal with Beleave Inc., the parent company of a licensed producer, built around a novel debt instrument dubbed the Debt Obligation repayable in Product Equivalent, or "DOPE Note". This allows the company to loan Beleave up to $10 million and receive repayment in cannabis, which can be sold by Beleave to its patients and/or customers or the company can sell on to other distributors. The first $5 million has already been advanced.
#5 Highly Connected & Experienced Management Team
Cannabis Wheaton (CBW; CBWTF) has a strong team at the helm, an experienced group of cannabis experts with enough market savvy to take full advantage of Canada's changing regulations.
CEO Chuck Rifici is a well-known figure in the cannabis industry, the co-founder of Canada's largest government-sanctioned marijuana producer, Canopy Growth Corp.
CBW is well positioned to navigate the regulatory environment. Rifici can count on legal knowledge from industry expert Hugo Alves, another industry pioneer and now President and Director of Cannabis Wheaton. Possibly no one in Canada knows more about the regulatory environment than him.
With this management team in place and its unique business model to back it up, Cannabis Wheaton considers itself better positioned than any other firm to take full advantage of the coming cannabis boom.
More companies in the therapeutics industry:
Innovative Industrial Properties (NYSE:IIPR)'s leasing plan is simple: the marijuana grower is responsible for everything from taxes to maintenance. The company's hands-off approach allows for a steady stream of revenue with little oversight.
AbbVie Inc (NYSE:ABBV) is one of the pioneers of marijuana-based treatment in the biopharmaceutical industry, realizing the potential of its cornerstone product, Marinol , years ahead of the competition.
Zynerba Pharmaceuticals (NASDAQ:ZYNE) is another innovator in the industry, creating a revolutionary transdermal THC patch, and the world's first and only synthetic non-psychoactive CBD patch.
Insys Therapeutics (NASDAQ:INSY) broke ground with its sublingual pain medication, Subsys, and with its advanced knowledge of synthetic cannabinoids, the company created a novel CBD product used to treat pediatric epilepsy.
Compass Diversified Holdings (NYSE:CODI) has a key stake in Manitoba Harvest, a company which uses hemp, a type of cannabis which does not contain THC, to create hemp-based foods, oils, and supplements.
By. Charles Kennedy
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FORWARD-LOOKING STATEMENT. Statements in this communication which are not purely historical are forward-looking statements and include statements regarding beliefs, plans, intent, predictions or other statements of future tense. Forward looking statements in this article include: that the Canadian government will fully legalize and regulate cannabis this year; that the Canadian medical and recreational markets combined will be worth $8 billion in gross sales in the year after legalization; that Cannabis Wheaton Income Corp. ("Cannabis Wheaton") can raise funds and partner quickly with new firms looking to get into the Cannabis industry and access the expertise of Cannabis Wheaton's management team and non-dilutive capital; that there will likely be a supply shortage; that, if cannabis markets open up in other industrialized countries, the global cannabis market could expand exponentially; That Cannabis Wheaton's production costs will be low; that Cannabis Wheaton may be able to help supply cannabis to markets outside Canada; that producers will need to obtain additional financing from companies like Cannabis Wheaton; that Canadian users of cannabis will consume 900,000 kg next year; that Cannabis Wheaton could become a future cannabis "multi-national"; that Cannabis Wheaton is better positioned to take advantage of the boom than other companies; and that the cannabis market in the world is worth over $31B. Forward-looking information is based on the opinions and estimates of Cannabis Wheaton at the date the information is made, and is subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information. Forward looking statements involve known and unknown risks and uncertainties which may not prove to be accurate. Actual results and outcomes may differ materially from what is expressed or forecasted in these forward-looking statements. Matters that may affect the outcome of these forward looking statements include: that Cannabis may not be legalized on the timeline as expected or at all; that markets may not materialize as expected; that cannabis may not turn out to have as large a market as thought or be as lucrative as thought as a result of competition or other factors; that Cannabis Wheaton may not be as able to diversify or scale up as thought because of potential lack of capital, lack of facilities, regulatory compliance requirements in Canada or outside of Canada or lack of suitable employees, partners or suppliers; that Cannabis Wheaton may not be able to raise funds and offer better conditions to potential partners than competitors in the cannabis industry; that partners of Cannabis Wheaton may not be granted licenses or additional capacity under existing or newly applied for licenses for them to grow for the cannabis market; that foreign governments may not allow Cannabis Wheaton to operate in their countries; that actual operating performance of the facilities affiliated with Cannabis Wheaton do not meet expectations; that competition quickly develops; that Cannabis Wheaton may not be able to retain key employees, partners and suppliers; costs may be higher than expected and profits therefore lower; competitors may capture most or all of the increased market demand; and other risks affecting the Company in particular and the cannabis industry generally, including without limitation risks related to most agricultural crops, including crop failure. The forward-looking statements in this document are made as of the date hereof and the Company disclaims any intent or obligation to update such forward-looking statements except as required by applicable securities laws.
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