Abattis Looks to Become a Go-To for LPs to Diversify
August 31st, 2017
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Canada’s cannabis industry could reach up to C$22.6 billion in size over the coming years, driven by the legalization of recreational cannabis expected next year. While many licensed producers are simply focused on expanding capacity to meet demand, those looking toward the future are starting to seek out partnerships to build higher value products. After all, cannabis flower will inevitably become a commodity as the supply-demand dynamics even out in the coming years as licensed producers in Canada and other legally licensed producers around the world race to build the biggest grow ops.
In this article, we will focus on the Canada’s cannabis industry, the need for diversification into higher margin products, and companies that are well-positioned to capitalize.
$22.6 Billion Industry
The Canadian cannabis industry is projected to become a C$12.7 billion to C$22.6 billion industry, according to Deloitte Canada, driven by the legalization of recreational cannabis as soon as next year. The analyst believes that the retail marijuana market could be worth C$4.9 billion to C$8.7 billion, while ancillary products and services could boost that figure to up to C$22.6 billion over the coming years as the industry matures.
When it comes to investment, licensed producers are best positioned to capitalize on the growing demand for cannabis since they are the only businesses permitted to grow and sell the drug. Health Canada has already approved more than 50 licensed producers, ranging from established publicly-traded companies like Canopy Growth Corp. (TSX: CGC) (OTC: TWMJF) to small privately-held companies that are just getting started.
These licensed producers are largely focused on scaling their operations by increasing square footage and enhancing crop yields. It’s a reasonable approach, as demand is expected to rise at a brisk pace and some analysts predict a shortfall in available supply over the next year or two. PI Financial expects a 200,000 kilogram short fall by 2019 and estimates that LPs will have to cultivate a total of 610,000 kilograms of cannabis to fulfill domestic and export demand.
Need for Diversification
The risk for licensed producers is that their business becomes commoditized as the market matures and more supply comes online. While it could be several years before supply outstrips demand, many licensed producers are already looking for ways to differentiate their products to compete over the long-term. This is especially important given the mail-order nature of the business that underscores the importance of securing customers early on.
In a recent interview with BNN, Canopy Growth CEO Bruce Linton said that “growing cannabis will be commoditized” at some point in the future and making “branded products” or “medical ingredients” is how to achieve higher margins. He added that the more you “change the form factor”, the higher the profit margins become on the finished products. In other words, new products will be an important way to boost the bottom line of LPs over time.
The problem is that many licensed producers aren’t experts in developing these non-flower products – their focus is on efficiently growing cannabis flower. While larger LPs have built their own in-house operations, many small- to medium-sized LPs have decided to partner with others to develop value-added products. These partnerships have created new opportunities for investors to capitalize on the growing demand for alternative products.
Abattis Bioceuticals Corp. (CSE: ATT) (OTCQB: ATTBF) aims to capitalize on these industry dynamics by becoming a go-to for licensed producers to develop higher margin products.
The company’s Northern Vine Labs™ subsidiary is licensed by Health Canada for the possession of cannabis and related active ingredients, as well as the production of extracts for the purpose of analysis. The company’s product certification and quality assurance programs incorporate best practices and procedures for application in the legal cannabis industry, while its laboratory enables it to experiment with, analyze, and formulate derivative products.
The company’s goal is to leverage its Northern Vine subsidiary to develop co-branded and white label products for licensed producer as well as its own line of cannabis-related products, and provide testing services to meet both voluntary and mandatory requirements. The laboratory’s unique extraction technology, the Raybot extraction machine, provides industrial scale extraction at a low cost, high purity, and high yield.
“This technology has the potential to revolutionize the extraction process for THC, CBD, CBG and other cannabis derivatives globally,” stated Robert Abenante, president and CEO of Abattis and Northern Vine. “Raybot’s proprietary extraction method is currently one of the only toll processing technologies that can extract high-purity CBD on an industrial scale. Furthermore, it could lead to the full separation of individual compounds and derivatives at significantly lower costs than today’s widely used methods.”
The extraction capabilities dovetail nicely with the company’s plans for complete downstream services. For example, the company recently announced a breakthrough CBD-based sunscreen formulation developed through its subsidiaries Northern Vine and Vergence Visionary Bioceuticals. Developed under the code name “Project RAYZ”, Northern Vine’s new CBD-based sunscreen is an all-natural, GMO-free, and 100% organic product.
Vergence has an established distribution network that it will utilize to sell the new sunscreen product as well as future formulations developed by the Northern Vine team. In essence, Abattis is positioned to capitalize on nearly every aspect of the cannabis industry that follows the original production of the flower itself.
“As the market continues to see an increase in the number of licensed producers, we will be there to meet all their downstream service needs,” said Mr. Abenante.
Abattis Bioceuticals Corp. (CSE: ATT) (OTCQB: ATTBF) represents a compelling opportunity in Canada’s C$22.6 billion cannabis industry. By working with LPs, the company hopes to become a go-to for the development of high margin products and testing services.
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