Insights into the legal cannabis market

By Jonathan Jackson. Published at Mar 15, 2019, in The 420 Report

Cannabis in Canada. It’s the biggest thing since Kim Kardashian broke the internet and it continues to gain momentum, as well as influence global industry development.

Canadian company Hexo announced it would acquire Newstrike Brands, a marijuana producer that has a partnership with members of the former Canadian rock band The Tragically Hip, in an all rock ... errr stock deal.

The C$263 million deal hands Hexo hundreds of thousands of extra square footage to produce more pot and complements its partnership with Molson Coors' (TAP) Canadian business to develop cannabis drinks.

The $6 billion Tilray has also been in the news with analysts suggesting it sold around $14 million worth of cannabis in the last quarter. It also made acquisitions including Natura naturals and Manitoba Harvest. However questions are now being asked as to whether it can actually live up to its $6.6 billion valuation if it doesn’t sell more product.

Canada is undoubtedly thriving, but who will develop that one product that could be the next sliced bread...or legal weed edible.

Cookies or soft drinks anyone?

Sproutly Canada, which has two subsidiaries Toronto Herbal Remedies and Infusion Biosciences, recently developed a first of its kind technology that creates safe beverages that don’t alter the cannabis compound. The technology is the world’s only truly water-soluble cannabis solution to be formulated into beverages.

According to the company, cannabinoids are not naturally water-soluble, they dissolve in fat. That’s why in the cannabis industry when companies do extractions they’ll use butane or supercritical CO2 to extract the cannabinoids from the plant. This alters the cannabinoids, and in doing so destroys the strain-specific benefit.

Sproutly’s technology manages the precise amount and potency consumers ingest in future consumer products, which means consumers can be certain about how much active ingredient is in a drink and what potency they are getting. There is no alteration of the cannabinoid.

Effectively, it de-risks the process and gives it a big edge over the competition. Here is the technology in action:

As many companies are already banking on the legalization of pot-infused edibles and drinks next year, some are encountering very real difficulties when it comes to making a safe beverage. Sproutly may have the counter to this and could find themselves in a strong position to change the soft drinks market which is experiencing 30-year lows.

CBD-infused drinks could be the new soft drink, just as vitamin-infused water and coconut water have changed the bottled water market.

What’s in a name... a lot really

Like any company, a strong management and advisory team is required to drive growth and market penetration. Sproutly seems to have this, but a couple of the bigger Canadian marijuana companies have been active in strengthening their executive to help them push into their respective markets.

The $12 billion capped Aurora Cannabis has brought on board Nelson Peltz. The billionaire consumer-industry veteran, who heads Trian Fund Management and has a 1.5% stake worth about $4 billion in Proctor & gamble, will act as an advisor as Aurora seeks new markets. Shares of Aurora jumped 10 percent after the Peltz announcement, with an option to buy nearly 20 million shares at C$10.34 a share also on offer. It was a small discount on the stock's close of C$10.64 on the day of the announcement.

"Canadian licensed producers, and Aurora in particular, are well positioned to lead in the development of the international cannabis industry," Peltz said in a statement.

The appointment of Peltz came just weeks after the $16.3 billion capped Canopy Growth Corp brought on board the much loved, but infamous Martha Stewart to bake cookies with the much stoned, but also much loved Snoop Dog.

Appointments don’t all have to be big name fund managers and celebrities.

Canadian listed The Supreme Cannabis Company, Inc. (TSX: FIRE) (OTCQX: SPRWF) (FRA: 53S1) recently announced the appointment of Mr Nikhil Handa as the its new Chief Financial Officer, with current CFO, Dimitre Naoumov to become the Vice President, Finance.

Supreme Cannabis, capped at $633 million, is realigning the leadership of its finance department to accelerate its international and domestic growth initiatives. Mr Handa, as CFO, will put an emphasis on capital allocation planning, M&A, and transactional execution as the company focuses on expanding operations and distribution of its cannabis products domestically and internationally.

Supreme Cannabis's product portfolio includes its wholly-owned subsidiary and multi-award-winning brand, 7ACRES, a federally licensed producer of cannabis operating inside a 440,000-square-foot facility in Kincardine, Ontario.

Speaking of facilities, ASX-listed Creso Pharma (ASX:CPH) was recently granted a licence to cultivate cannabis at its wholly owned, Nova Scotia-based subsidiary Mernova Medical.

Here’s Chief Operating Officer John Griese discussing the company's licence.

Another leading Australian cannabis company is also shoring up its position, whilst growing its Canadian footprint. AusCann Group Holdings Limited (ASX:AC8) recently announced the appointment of global pharmaceutical business executive, Mr. Ido Kanyon, as Chief Executive Officer (CEO), commencing 22 May 2019.

Kanyon’s most recent position was with Teva Pharmaceutical Industries (NYSE:TEVA), the world's largest generic pharmaceutical company which also specialized in the development and commercialization of active pharmaceutical ingredients and specialty proprietary medicines.

Teva is listed on the NYSE with FY17 revenues of over US$22 billion.

AusCann Chairman, Dr Mal Washer, commented: “Ido is very highly regarded in the pharmaceutical industry and having worked both for start-ups and for one of the largest pharmaceutical firms worldwide, he understands AusCann’s start-up origins and where the firm is headed. We are confident that his experience, energy and drive will successfully lead AusCann into its next phase of growth as a pharmaceutical development, sales and marketing business.”

Mr Kanyon added: “I am absolutely delighted to be appointed as AusCann’s CEO during this exciting time. Medicinal cannabis will have an ever-increasing presence in healthcare as a credible treatment for chronic pain and additional indications with unmet medical needs. I believe there is a unique opportunity to place patients, physicians and caregivers at the center of our mission. I am excited by AusCann’s commitment to deliver with the highest standards of quality, innovation and trust. I would like to thank the Board for their appointment and look forward to working with the incredibly talented team already in place.

“AusCann has everything in place to achieve a leading position in the rapidly growing field of medical cannabis, and to capitalize on the excellent work done under the leadership of Ms Elaine Darby and interim CEO Dr Paul MacLeman. We have a promising future ahead of us and we will make sure to deliver sustain value for our investors, customers and employees.”

Even Deloitte is on the bandwagon

Deloitte will partner with Nielsen and Headset, two data analysis companies that will help it develop insights into the industry.

Deloitte Canada partner, Jennifer Lee explained, “We are bringing together the top organisations in the consumer and cannabis space, because we know that insight-driven organisations are much more successful.”

Nielsen will monitor the evolution of cannabis in Canada and produce real-time market intelligence on the sector, whilst Headset is dedicated solely to data insights for the cannabis market.

“As the cannabis industry heats up in Canada it is critical that organisations leverage data to drive informed decisions in this fast-moving space,” said Headset CEO Cy Scott.

He is not wrong. With sales of federally regulated cannabis in Canada expected to reach as much as C$17 billion in 2019, companies as big as Aurora and small as Sproutly, will have to get a grip on the data that will drive future growth.

Or they can just continue to drink their own cannabis infused cool-aid.

Where to invest $1,000 right now

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

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