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Early Cannabis Legalization Struggles Could Yield Opportunities

Ryan Allway

November 6th, 2018

Exclusive, Top News

Canada became the first major economy to legalize adult-use cannabis on October 17th, but cannabis stocks quickly gave up their gains leading up to the historic day. In addition to traders “selling the news” and locking in their gains, supply shortages, distribution issues, and quality concerns contributed to a major pullback in the sector. The Horizons Marijuana ETF (TSE: HMMJ) fell more than 20 percent between October 17 and 26, but investors have an opportunity to purchase high-quality cannabis companies with strong fundamentals at a significant discount.

The Supreme Cannabis Company (TSX-V: FIRE) (OTCQX: SPRWF) (FRA: 53S1) is one of the younger licensed producers, having only received its cultivation license two years ago, but it has become among the fastest scaling licensed producers in the industry with nearly $9 million in revenue during its first four quarters of revenue. While most LPs are focused on expanding production capacity, the company’s 7ACRES brand is focused on premium cannabis flower that’s well-regarded by medical consumers and other LPs. It has secured distribution across more than half of Canada’s provinces and is paving the way to become the country’s first coast-to-coast premium cannabis brand.

Challenges Arise Across Canada

Canada’s move to legalize adult-use cannabis hasn’t been without its problems. According to Vice, both online and brick and mortar stores began selling out of cannabis on the first day. Many brick and mortar retailers didn’t receive the full supply that they ordered from licensed producers, which meant starting out on the wrong foot with their customers. These dynamics have tarnished the reputation of some LPs that may have over-promised and under-delivered.

There are signs that many LPs may simply be overstretched. According to Globe and Mail, some licensed producers have had to dispose of hundreds of thousands of dollars of cannabis crop because there aren’t enough workers to harvest them. Government approvals are also taking much longer than expected for existing licensed producers to expand their production capacity, despite the addition of new Health Canada employees.

There’s also growing concerns over safety and labeling. For example, CBC News recently reported that one licensed producer provided an incorrectly labeled product to a government-run cannabis store, which has consumers confused and frustrated. These kinds of mistakes could end up harming relationships with both distributors and consumers and open the door for new competitors to gain market share.

Strategic Distribution

The Supreme Cannabis Company is among the fastest scaling licensed producers in the market. Since its cultivation license approval, the company’s $14 million run-rate places it in the top ten publicly-traded licensed producers. The speed hasn’t compromised quality, however, with its 7ACRES brand consistently listed in the top tier brand category in all provincial supply agreements that it has signed to date.

With a laser-focus on producing premium cannabis flower, the company believes that it will complete its 342,000 sq. ft. facility by the end of this year and will ramp up production from 13,333 kilograms to 50,000 kilograms by the early part of next year. Management also intends to leverage strategic investments to capitalize on other areas of the market without compromising its focus. For example, its equity interest and distribution agreement with Lesotho-based Medigrow paves the way for it to become a leading provider of cannabis oil.

The company’s management team also realizes that distribution—not capacity alone—drive revenue. To that end, the company has signed six supply agreements, which places it just behind Canopy Growth Corp. (TSX: WEED) and Aphria Inc. (TSX: APH)—two of the largest licensed producers in Canada.

Looking Ahead

The Supreme Cannabis Company (TSX-V: FIRE) (OTCQX: SPRWF) (FRA: 53S1) represents a compelling investment opportunity within the cannabis industry. With the sector’s sell-off taking valuations to lower levels, investors have an opportunity to invest in high-quality companies at a discount. They may want to take a look at Supreme Cannabis given its plans to scale up production and unlock value for shareholders.

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

Disclaimer

The above article is sponsored content. Emerging Growth LLC, which owns CannabisFN.com and CFN Media, has been hired to create awareness. Please follow the link below to view our full disclosure outlining our compensation: https://cannabisfn.com/legal-disclaimer/

This article was published by CFN Enterprises Inc. (OTCQB: CNFN), owner and operator of CFN Media, the industry’s leading agency and digital financial media network dedicated to the burgeoning CBD and legal cannabis industries. Call +1 (833) 420-CNFN for more information.

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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CFN Enterprises Inc. (OTCQB: CNFN) owns and operates CFN Media Group, the premier agency and financial media network reaching executives, entrepreneurs and consumers worldwide. Through its proprietary content creation, video library, and distribution via www.CannabisFN.com, CFN has built an extensive database of cannabis interest, assisting many of the world’s largest cannabis firms and CBD brands to build awareness and thrive. For more information, please visit www.cfnenterprisesinc.com.

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