Sector Diversification: Potentially The Most Misunderstood Sector Of Them All Is Gearing Up For A Shift You May Never See In Your Lifetime.
Many investors are still ‘weary’ of this sector, and we find that mind boggling. You may never see a shift this large again in your lifetime. In August 2018, recreational Cannabis goes legal in Canada, the first G20 country to do so, the rest will be like dominoes. Here’s some quick stats, and we are just scratching the surface here:
Big cannabis brands are taking opportunity very seriously and are moving quickly to prepare. Companies like Aphria Inc. (TSX: APH OTCQB: APHQF) and Aurora Cannabis Inc. (TSX: ACB) (OTCQB: ACBFF) are preparing by making strategic investments and purchases to bolster their rec presence.
The recreational market is such a huge opportunity that even big alcohol is getting in on it, with Constellation Brands (NYSE: STZ and STZ.B) recently investing $190 Million USD ($245 Million CDN) in Canopy Growth Corporation (TSX:WEED) (OTC: TWMJF).
These are examples of brands that specialize in medical marijuana trying to maximize and prepare for the recreational market as it blossoms. Of course the recreational market will demand different brands than medical.
For investors looking to capitalize on this huge opportunity, we’re following an emerging Canadian company with not one, but three major growing facilities under development and brand/distribution capacity that are perfectly built for the recreational market: MYM Nutraceuticals (CSE: MYM) (OTC: MYMMF).
We will look at MYM Nutraceuticals in a bit, but first let’s look at the recreational industry and what companies are doing to prepare.
Trends for 2018
After a crazy market upswing over Christmas and into the New Year, the Canadian Marijuana industry prepares for a big year.
Branding In The Canadian Recreational Industry
Advertising standards and regulations for the legalized marijuana industry are still being finalized, but just as with alcohol advertising, there will likely be very strict controls on advertising. Companies will have to be focused only on their own brand and adhere to ad standards of Canada.
This results in branding being one of the most important aspects of the new recreational industry.
Established companies were traditionally set up for medical and now have to somehow make the transition to market themselves for recreational use.
Key deals display the trend:
- Aphria (TSX: APH OTCQB: APHQF) signed an agreement to acquire 100% of Broken Coast Cannabis, a premium cannabis producer located in British Columbia for $230 million in stock and cash. The deal will add incremental annual production of 10,500 kgs, some of that cannabis being market ready today. This addition will boost Aphria’s forecast annual production to 230,000 kgs. The transaction also gives Aphria more geographic diversification, a cross-Canada distribution platform, and access to over 40,000 medical patients.
- Recent merger of DOJA Cannabis Company Limited (CSE: DOJA) and TS Brandco Holdings Inc. (“Tokyo Smoke”) created the first brand and retail-focused, Hiku, craft cannabis producer, with a portfolio of highly recognizable brands. Hiku is strategically positioned to become the preeminent cannabis brand house in the Canadian adult-use cannabis market. Concurrently, DOJA entered into a binding agreement with Aphria pursuant to which Aphria has committed to make a $10 million strategic equity investment into Hiku. Additionally, the parties have agreed on the terms of a supply agreement to secure cannabis concentrate supply for Hiku’s premium brand portfolio. Upon completion of the merger, the Company will have a robust cash position of approximately $31 million, which it plans to invest in expanding its cannabis production capacity, growing its retail footprint, and adding select brands to its portfolio through highly strategic and complementary acquisitions.
- Harvest One Cannabis (TSXV:HVST) (OTC: HRVOF) through its wholly owned subsidiary United Greeneries announced the launch of retail sales beginning February 2018. Starting February 2018, United Greeneries will launch a new online retail platform for medical clients under the Access to Cannabis for Medical Purposes Regulations (“ACMPR”). The initial offering will consist of two distinct cannabis brands, providing patients a wide range of different strains and cannabinoid profiles.
- Aurora Cannabis Inc. (TSX: ACB) (OTCQB: ACBFF) has bought in 17% stake in The Green Organic Dutchman (TGOD), with option to Increase to in Excess of 50%. As part of the agreement, the companies shall enter into a supply contract, providing Aurora with the right to purchase up to 20% of TGOD’s annual production of organic cannabis from TGOD’s Ancaster and Valleyfield facilities. Consequently, Aurora anticipates being able to procure in excess of 20,000 kg per annum of premium organic products once TGOD`s Valleyfield and Ancaster facilities are completed and at full capacity. The supply contract provides Aurora with the right to purchase up to 33% of TGOD’s production at the two facilities if Aurora increases its ownership interest to 31%.
- Canada’s move toward legalization has already inspired one U.S. Company, the New York-based alcohol beverage producer Constellation Brands (NYSE: STZ and STZ.B), to buy a 10% stake in the Canadian pot company Canopy Growth Corporation (TSX:WEED) (OTC: TWMJF) for $190 million.
Unlike medical marijuana brands who have to acquire brands to prepare for rec, this small cap Canadian company was created with developing brands, marketing and distribution for the recreational market rom the get go.
MYM has also become a leading integrated provider of branded products related to the natural cannabis nutraceuticals industry. This strategy, coupled with its strategic partnerships, international expansion and growth in revenue have put MYM Nutraceuticals right in the sweet spot for rec.
Investors have already proven that they are excited about the MYM Nutraceuticals, with its share price experiencing over a 500% gain on the CSE since a momentum price rise in October 2017.
MYM Nutraceuticals has a video that explains their vision for the company.
MYM Nutraceuticals is a multi-faced, brand oriented marijuana company building the biggest growing operations and collaborations on the roster.
- Through its subsidiary, Sublime Culture Inc., MYM Nutraceuticals is in the last stages of obtaining License Producer status under Health Canada’s Access to Cannabis for Medical Purposes Regulations (ACMPR).
- MYM Nutraceuticals has taken a brilliant tact to assemble what, upon completion, will be the largest group of cannabis growing facilities in the world. The company has three projects that will bring its total growing capacity to over 625,000 square feet as early as 2019.
- The projects include:
- Weedon, Quebec: Its flagship project is a planned 1.5 million square foot growing facility in the town of Weedon, Quebec. Through its subsidiary, CannaCanada, the company is building what will be, at full capacity, the most productive Cannabis facility in the world by total output.
- Laval Quebec: is a smaller by comparison, but will be MYM Nutraceuticals’ first operation to come online and begin harvesting. The company is completing the first phase of its production facility. MYM Nutraceuticals’ planned extraction and processing department there will also house a cannabis product testing and research laboratory in partnership with TheraCann Canada – a leading ISO compliance testing firm.
- Casino, South Wales, Australia: The Northern Rivers Project is a co-venture just reached between PUF Ventures and MYM Nutraceuticals for a 35% stake in a proposed 1.2 million square foot greenhouse and extraction facility in Casino, New South Wales, Australia. At full scale, the facility will have the capacity to produce 100,000 kilograms of high quality cannabis per year, worth between C$800 million and C$1.1 billion.
- January 2018, MYM Nutraceuticals announced it signed a Memorandum of Understanding (MoU) with NEWCANNA S.A.S., a leading Colombian medical cannabis company for a joint venture or partnership agreement in which they would form a new, jointly owned company in Colombia to focus on the large-scale commercial cultivation and transformation of cannabis and hemp for medical, scientific and industrial purposes and export to worldwide markets.
Deloitte Review Of Weedon Facility
Unlike many companies entering in this budding new area, MYM Nutraceuticals has a very clear view of its prospects. A case in point is the Deloitte Report on the company’s Weedon facility that gives a great breakdown of the its flagship project in Quebec, Canada.
- Fixed assets investments: Investments of $104 M are planned for the construction of cannabis production greenhouses in Weedon, Québec, as well as $119 M for the construction of a multipurpose center, which will include a museum, an auditorium, a cafeteria, a school, a restaurant, a bookstore, a luxury hotel, a clinic and a cannabis research and innovation center. These two infrastructures represent a total of $223 M in construction investments.
- Total economic impact: The total economic impact (added value to the project’s costs) for all construction projects and greenhouses operations on a 15-year period, assuming full production capacity, is estimated at $3.1 B for Canada. The breakdown goes as follows: $208.1 M for construction and $2.9 B for operations ($194.9 M per year). As for Québec, using the same calculation method, the economic impact over the same period of time is estimated at $2.2 B.
- Economic impact generated by the construction: The direct value added to GDP from the construction projects in Canada is estimated at $93.1 M and the total impact (including indirect and induced impacts) is estimated at $208.1 M. The economic impact in Québec is estimated at $173.5 M.
- Economic impact generated by the operations: The total economic impact in Canada of the greenhouses operations (including indirect and induced impacts) generated by the operating expenses is estimated at $2.9 B for a period of 15 years, or $194.9 M per year. The economic impact for Québec is estimated at $2.1 B for the same period.
- Governments Tax Revenues: The construction projects and the greenhouses operations will generate tax revenues (excluding corporate taxes and potential excise duty) of nearly $493.4 M for the Government of Québec and nearly $277.6 M for the Government of Canada.
So in essence, the company’s Weedon facility represents a $2.9 Billion (CDN) operation annually upon completion.
Conclusion: Recreation legalization will create a brand new wave of investment opportunity. While established companies that started with medical brands are trying to address the upcoming recreational market through acquisitions and capacity expansions, companies entering the recreational market directly like MYM Nutraceuticals will have a distinct competitive advantage given their recreational-ready business model.
MYM Nutraceuticals’ approach is one of our favorites in the emerging rec market thanks their impressive investment highlights.
For investors looking to get into the huge potential of the recreational market with an up and coming company that’s not already valued like a big board stock, small cap company, MYM Nutraceutical (CSE: MYM) (OTC: MYMMF) could be a great option.
USA News Group
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