ABcann Medicinals: Low Cost, Pharmaceutical Grade, Standardized Licensed Producer Poised to Go Public
March 9th, 2017
Canada’s legal cannabis industry could generate $22.6 billion in annual revenue, which has created significant opportunities for investors in the space. With only 38 licensed producers to meet rising demand, investors may want to pay especially close attention to publicly-traded licensed producers that enjoy exclusive rights to grow, harvest, and distribute medical and soon recreational cannabis to consumers and patients throughout the country.
In this article, we will take a look at ABcann Medicinals Inc., which is set to become the next publicly-traded licensed producer, as well as its key competitive advantages and growth plans over the coming years.
Canada’s Burgeoning Market
Canada’s legal cannabis industry could generate $22.6 billion in annual revenue, according to Deloitte, which is higher than the combined sales of beer, wine, and spirits. The analyst firm believes that the base retail market will generate $8.7 billion in annual revenue, while ancillary markets like security and testing labs would make up the remainder of the revenue. This has created many opportunities for investors to capitalize on the newly minted industry.
With only 38 licensed producers, Deloitte believes that there will be a shortfall in production over the short- to medium-term as consumer demand grows to 600,000 kilograms per year. These dynamics have helped propel publicly-traded licensed producers to lofty levels. In fact, Canopy Growth Corp. (TSX: WEED) (OTC: TWMJF) – the largest licensed producer in the space – became the first cannabis ‘unicorn’ with a market capitalization of nearly C$2 billion.
ABcann, one of the first licensed producers under Health Canada’s Access to Cannabis for Medical Purposes Regulations (“ACMPR”), is looking to go public in March or early April of 2017. With many existing LP stocks trading at lofty multiples, investors may want to take a closer look at ABcann given its many competitive advantages, future expansion plans, and its status as the latest upcoming company to ‘go public’ in the space.
Licensed producers all benefit from exclusive access to a large and growing market, but there are some important differences between them. ABcann Global has carefully built its business around becoming a low-cost producer of high-quality organic cannabis. By investing millions in controlled environmental systems research, the company has doubled the industry average yields while producing a highly standardized product. The standardization and consistency of the strains is especially important for medical marijuana patients who require repeatable results from the medicines they buy.
Figure 1 – Yield Comparison – Source: Investor Presentation
The company’s production is also certified organic and grown without the use of pesticides. With a growing number of recalls, consumers are becoming increasingly cognizant of the risks associated with tainted cannabis. Organic products could become a new standard as consumers look to avoid these risks by ensuring that no pesticides – much less banned pesticides – are used in the growing process.
These low costs and premium products have helped the company achieve 30% monthly growth with a 94.7% customer retention rate. In addition to its individual customers, the company has become an important supplier to larger companies within the global cannabis industry. Notably, the company has shipped product to Syqe Medical in Israel – a partner of TEVA Pharmaceuticals Inc. (NASDAQ: TEVA) – and continues to support its testing and R&D.
ABcann’s current production stands at 1,000 kilograms per year via its 14,500 square foot facility located in Napanee, Ontario. In its next phase, the company plans to immediately begin expanding the Napanee facility to 71,500 square feet and boost production to 20,000 kilograms per year. The company’s existing property and rights enable it to expand well beyond these figures over the coming years to some 1.2 million square feet on 65 acres.
The company’s expansion opportunities could put it on par or in excess of many other publicly-traded licensed producers in the space. Investors may want to keep a close eye on the company as it executes its expansion plans since it would make it one of the largest players in the industry with both a cost and quality advantage relative to its competition.
Executive and Advisory Team
ABcann has assembled an impressive group to shepherd the company through the public company process and achieve its aggressive expansion goals. Paul Lucas, former CEO (for 18 years) of GlaxoSmithKline Canada, sits on the Board of Directors. Lucas brings a wealth of public company experience, along with invaluable pharmaceutical industry chops, to ABcann’s board. Raphael Mechoulam, the Israeli chemist widely known as “The Father of Cannabis” whose team of scientists originally discovered the chemical structure of cannabidiol (CBD) and were the first to isolate tetrahydrocannabinol (THC), is a member of the company’s Medical Advisory Board.
Canada’s cannabis industry could reach $22.6 billion in annual revenue, which creates an enormous opportunity with licensed producers and other companies. With its low-cost and high-quality production, ABcann Global has been rapidly growing at a 30% monthly clip with plans to expand to more than one million acres over the coming years. Investors may want to keep an eye on the company as it ‘goes public’ in Canada in the next few weeks.
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