Harvest One’s Dual Strategy Sets It Apart from Other LPs
June 2nd, 2017
News, Top News
The global cannabis industry is rapidly gaining steam following medical and recreational legalization in Canada and liberalization of cannabis laws elsewhere around the world. Investors have many different options for investing in the space – including both the medical and recreational side of the business – but few companies offer exposure to both and even fewer offer exposure to the global industry rather than a country-specific focus.
In this article, we’ll look at Harvest One Cannabis Inc.’s (TSX-V: HVST) dual strategy and how it can help investors diversify their exposure to the cannabis industry.
Many Different Approaches
The Canadian cannabis industry is expected to surpass C$22.6 billion over the coming years, according to Deloitte Canada, as recreational use goes into effect next year. Not surprisingly, the rapidly growing industry has attracted billions of dollars in capital and thousands of entrepreneurs. These companies are taking a wide range of approaches, from developing recreational brands to studying medicinal benefits.
Licensed producers are taking the straightest approach to the industry by directly cultivating cannabis under the Access to Cannabis for Medical Purposes Regulations (ACMPR). With only about 40 licensed producers, PI Financial analysts expect that there will be a shortfall in supply until 2020 as they struggle to keep up with rising demand. Some licensed producers have focused on maximizing production while others have tried to build up a niche.
These licensed producers can be generally divided into those focused on medical cannabis and those focused on recreational usage. Medically-focused companies are focused on developing clinically-differentiated product lines designed to target specific medical conditions, while recreationally-focused companies are largely focused on large-scale production and branding efforts in conjunction with famous marijuana celebrities.
There’s also an increasing opportunity for medical marijuana outside of Canada as a growing number of countries liberalize their laws. For example, Prohibition Partners recently issued a report finding that Europe’s cannabis industry could reach 18 billion over the coming years. Relatively few public companies are well-positioned to capitalize on these international markets given the underdeveloped status of the industry compared to Canada or the United States.
Dual Strategy for Diversification
Investors face a tough decision when deciding where to invest in licensed producers. Some of these companies have targeted both segments of the market – such as Canopy Growth Corp. (TSX: WEED) – but their valuations tend to be on the high end of the spectrum. Those targeting only medical cannabis may achieve near-term revenue, but they could be leaving money on the table when it comes to the much larger recreational market.
Harvest One has developed a ‘dual strategy’ designed to target both markets within a single publicly-traded entity. The company accomplishes this through two wholly-owned subsidiaries targeting each market. And unlike many competitors, these companies are targeting more than just Canada – they’re targeting the global cannabis industry.
United Greeneries is a Canadian ACMPR licensed producer that will serve as the company’s horticulture arm and recreational brand. With current capacity for 1,000 kilograms per year, the company plans to immediately expand capacity by 7,500 kilograms per year in 12 months and 50,000 kilograms per year onward, according to its investor presentation. The company’s Lucky Lake property with 12,000 kilograms per year of capacity is also nearing approval.
Satipharm is a cannabis-based health products firm specializing in the development and manufacturing of medical products. In particular, the company secured global exclusive rights to Gelpell® Microgel Capsules for cannabis applications. The company generates near-term revenue from supplement sales in the European Union with mid-term growth from entry into regulated markets in Canada, Australia, and elsewhere around the world.
The company’s Gelpell products contain a controlled delivery system that enhances oral bioavailability. The capsules are manufactured under Good Manufacturing Practices (GMP) in Switzerland with medical cannabis grown under Good Agricultural and Collection Practices (GACP) in highly-controlled environments. The capsules are also tested to be completely THC-free.
Since undergoing a successful Phase I clinical trial for safety and bioavailability, the product has been approved by the health authorities and prescribing physicians in some countries for the treatment of approved medical conditions.
Harvest One Cannabis Inc.’s (TSX-V: HVST) dual strategy represents a compelling way for investors to gain exposure to the rapidly growing cannabis industry. With plans to produce upwards of 7,500 kilograms annually by the end of the year, the company is well on its way to generating revenue and profit from dried cannabis sales. At the same time, its Satipharm division is actively commercializing a leading medical cannabis brand.
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