Next Investors logo grey

Health Canada decision a key milestone for Roto-Gro


Published 20-MAR-2019 14:10 P.M.


6 minute read

Hey! Looks like you have stumbled on the section of our website where we have archived articles from our old business model.

In 2019 the original founding team returned to run Next Investors, we changed our business model to only write about stocks we carefully research and are invested in for the long term.

The below articles were written under our previous business model. We have kept these articles online here for your reference.

Our new mission is to build a high performing ASX micro cap investment portfolio and share our research, analysis and investment strategy with our readers.

Click Here to View Latest Articles

In a development that is highly significant for Roto-Gro International Ltd’s (ASX:RGI) plans to establish itself as a global leader in the cultivation of lawful cannabis and perishable foods, Health Canada has approved the conversion of the dealer’s licence held by Supra THC Services Inc from the Narcotic Control Regulations of the Controlled Drugs and Substances Act (Canada) to the recently enacted Cannabis Act (Canada) and Cannabis Regulations (Canada).

This is part of the definitive share purchase agreement (SPA) executed in October 2018 between Roto-Gro International and Valens GroWorks Corp.(CSE:VGW) to acquire all of the issued and outstanding shares in the capital stock of Supra THC Services Inc.

Health Canada’s ruling allows Roto-Gro International to pursue its intentions of building a 44,000 square feet growing facility with the endgame being establishing offtake agreements and benefiting from downstream value-added products and services.

Commenting on these developments, RotoGro managing director, Michael Carli said, “Health Canada’s approval of the conversion of the Supra THC Dealer’s Licence from the Controlled Substances Act to the Cannabis Act confirms our reputable standing with the governing bodies and legislative relationship with Valens and Cannabis Compliance Inc (CCI) to execute on relocating operations to the proposed facility in Caledon, Ontario and amending the license to include standard cultivation activities.”

Putting together the pieces

Supra THC is a wholly-owned subsidiary of Valens, a Canadian publicly-listed company located in British Columbia, Canada which specialises in the processing of cannabis into pure extracts and oils.

To date, Supra THC has operated its business pursuant to a Dealer’s Licence issued by Health Canada in accordance with the Narcotic Control Regulations of the Controlled Drugs and Substances Act (Canada).

Supra THC’s Dealer’s Licence permits the possession of cannabis and related active ingredients, in addition to the production of extracts for the purpose of analysis.

The company engaged CCI to coordinate the licence conversion to the Cannabis Act (Canada), which is now complete.

Authorised activities under the new regulations

Dealer’s Licences were previously issued by Health Canada pursuant to the Narcotic Control Regulations of the Controlled Drugs and Substances Act (Canada).

The Cannabis Act (Canada) and the corresponding Cannabis Regulations which were enacted on October 17, 2018, legalised the recreational use of cannabis nationwide in Canada.

This new legislation also controls and regulates the production, distribution and sale of lawful cannabis in Canada.

Amendments to the narcotic control regulations will remove references to cannabis and convert existing Dealer’s Licences to an equivalent licence pursuant to the cannabis regulations.

Pursuant to the revised cannabis regulations and its dealer’s licence, Supra THC is permitted to conduct standard processing, analytical testing, research, production, sale and distribution of lawful cannabis.

This will provide Roto-Gro International with complete supply chain control, strategically important in terms of optimising efficiencies and maximising margins.

Licence to permit standard cultivation

In addition to these permitted uses, the company will apply for an amendment to this licence to permit standard cultivation.

The Cannabis Act (Canada) and the Cannabis Regulations authorise processing licence holders to alter cannabis to manufacture intermediary or finished products, and to sell cannabis to other processors.

All processing licence holders are authorized to sell and distribute finished cannabis products to authorised sellers and distributors.

Pursuant to the Cannabis Act (Canada) and the Cannabis Regulations, cultivation licence holders are authorised to cultivate, propagate and harvest cannabis plants, and to sell the harvested material to other licence holders.

Licensed cultivators are authorized to package and label cannabis plants and seeds for sale to authorised sellers or distributors.

Consequently, gaining authorisation to allow standard cultivation would be an important advantage for Roto-Gro.

RGI is changing the cultivation practices for urban farming and lawful cannabis.

Acquisition activity suggests upside for Roto-Gro

Of the six Canadian lawful cannabis Dealer’s Licences owned by publicly listed companies, two are owned by Valens.

The remaining four are owned by Canopy Growth Corp., Aurora Cannabis Inc., Nuuvera Inc. and Cannabis Wheaton Income Corp.

A number of acquisitions have been completed in this space, including Aurora purchasing Anandia Laboratories Inc. for C$115 million in June 2018, Nuuvera purchasing ARA-Avanti Rx Analytics Inc. for $43 million in February 2018 and Wheaton purchased Dosecann LD Inc. for $38 million in April 2018.

Roto-Gro’s diversification provides acquisition opportunities

Roto-Gro is an Australian-based company with global operations focused on the cultivation of lawful cannabis and perishable foods which take advantage of its licensed, proprietary, patented, and patents-pending technology in the stackable rotary hydroponic garden space.

Roto-Gro holds worldwide exclusive licences for lawful medicinal and recreational cannabis markets and has agreed, subject to shareholder approval, to acquire the technology for all other purposes including pharmaceuticals, nutraceuticals and perishable foods.

The company has collaborated with Gibio Inc. and Freshero, ventures that leverage RotoGro’s patented rotational hydroponic garden systems, crop management fertigation hardware and proprietary software systems to produce greater yields and lower operating costs.

RotoGro’s wholly-owned subsidiary, Global Fertigation Solutions Inc. (GFS), provides a patent-pending specialized business line for water treatment and nutrient management in the viticulture, perishable foods and lawful cannabis space.

GFS has successfully provided design solutions, installations and ongoing service contracts for licensed lawful cannabis facilities in the State of Nevada, USA and is embarking on expanding this offering globally.

The company continues to examine prospective acquisitions or other commercial opportunities with Carli saying, “Our focus is on expanding into industry synergistic opportunities, exploring strategic partnerships and complementary acquisitions in related markets which include, perishable food partnerships, lawful cannabis licence ownership, growing management services, industry leading nutrients, emerging tissue culture (micropropagation) expertise and other supporting faculties of hydroponic growing.”

General Information Only

S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (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 and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

Conflicts of Interest Notice

S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.

Publication Notice and Disclaimer

The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.

Any forward-looking statements contained in this article are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results or performance of companies featured to differ materially from those expressed in the statements contained in this article. S3 cannot and does not give any assurance that the results or performance expressed or implied by any forward-looking statements contained in this article will actually occur and readers are cautioned not to put undue reliance on forward-looking statements.

This article may include references to our past investing performance. Past performance is not a reliable indicator of our future investing performance.