Cannabis Wheaton: Diversified Exposure to Licensed Producers

Ryan Allway

May 18th, 2017

News, Top News

Canada’s cannabis industry is expected to surpass $20 billion following the legalization of recreational cannabis next year. While investors can purchase several licensed producers, there are unique risks associated with these companies, such as production delays or poor harvests. The good news is that there are some companies that provide exposure to the licensed producer space without the risk of investing in individual companies.

In this article, we will look at how Cannabis Wheaton (TSXv: CBW) (OTC: KWFLF) is transforming the cannabis industry’s investment model and changing the way companies work together.

Rapidly Growing Industry

Canada has become a pioneer in the legalization of medical and recreational cannabis. With plans to legalize recreational cannabis next year, Deloitte Canada projects that the market could mushroom into a $22.6 billion industry. The retail market is projected to be worth between $4.9 billion and $8.7 billion per year, while growers, testing labs, lighting providers, security systems, and other ancillary services would increase that number to $12.7 billion to $22.6 billion.

Health Canada has already approved more than 40 licensed producers, but analysts still project a shortfall in supply that could support high prices. PI Financial believes that licensed producers will need to cultivate a total of 610,000 kilograms of cannabis to meet domestic and export demand by 2019, but existing capacity could result in a 200,000 kilogram shortfall. And, the rigorous process of becoming a licensed producer could limit future supply growth.

These dynamics have encouraged existing licensed producers to invest in ambitious expansion plans to maximize their revenue. Despite the market’s potential, raising capital can be somewhat difficult and expensive due to the unique risks associated with the industry. Lenders have a tough time determining compliance, licenses are not transferrable, inventories aren’t salable, and there are risks with lending to non-compliant borrowers.

Streaming Business Model

Cannabis Wheaton aims to solve these problems and capitalize on the $22.6 billion industry with an innovative streaming business model.

The company has already established 14 agreements across six provinces to fund facility construction, expansion, and innovations in exchange for minority equity interests and portions of the cultivation production. Through these agreements, the company has access to 1.3 million square feet of cultivation (by 2019), 30,000 registered patients, and nearly 40 medical marijuana clinic partnerships located throughout the country.

In addition to financing, the company provides its partners with access to its industry relationships and brand building expertise. The company plans to continuously build its partners’ product offerings to maintain brand and consumer loyalty as the market moves toward recreational legalization next year. The goal is to help these partners maximize their profitability, which in turn helps maximize the company’s equity interest in them.

Investors benefit from this business model by realizing the upside of multiple cultivation facilities without risks like build-out delays, licensing delays, or poor harvests. In essence, the company provides investors with an exchange-traded fund (ETF) like vehicle for investing in the cultivation and production side of the cannabis industry, along with exposure to the consulting and branding segment of the industry over the long-term.

Experienced Management

Cannabis Wheaton’s management team is comprised of industry first-movers, visionaries, and experts dedicated to helping its streaming partners reach their growth potential.

Chairman and CEO Chuck Rifici founded Canopy Growth Corp. (TSX: WEED) and built it into a 500,000 square foot licensed producer. Today, the company is worth over C$1 billion and has become a leader in the space. Mr. Rifici is also the CEO of Nesta Holding Co., a private equity firm that builds partnerships and brands within the cannabis space, as well as Chairman of National Access Cannabis, a clinic helping patients access cannabis.

CFO and COO Jeff Tung, CFA, was the co-founder of CPS Management Partners, where he led the acquisition of multiple businesses in the insurance space. Ultimately, the firm became the largest workers’ compensation claims administrator in Canada with IRRs in excess of 50%.

Chief Creative Officer Ian Rapsey is an award-winning creative director that helped build Tweed Marijuana’s rebranding of Bedrocan following its acquisition. Prior to working in the cannabis industry, he was the creative lead at Bruce Mau Design where he worked with global brands.

Chief Infrastructure Officer Brad McNamee is a second-generation mechanical contractor specializing in HVAC design and design-build services. He was a key member of the original ground-breaking team tasked with pioneering a large scale indoor environmental production platform for the medical cannabis industry prior to joining the company.

Looking Ahead

Cannabis Wheaton (TSXv: CBW) (OTC: KWFLF) has become the world’s first streaming company targeting Canada’s burgeoning cannabis industry. Through financing and consulting services, the company helps licensed producers maximize their profitability and secures equity and production interests in return. Investors benefit with diversified exposure to a variety of licensed producers across the country and potentially better risk-adjusted returns.

For more information, visit the company’s website or investor presentation.

Ryan Allway

About Ryan Allway

Mr. Allway has over a decade of experience in the financial markets as both a private investor and financial journalist. He has been actively involved in the cannabis industry since its inception, covering public and private companies.

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