Canada Could be on the Cusp of a Cannabis Revolution
(5 months ago)
LONDON: The world has a pot problem. Quite simply: there isn't enough of it, legal and accessible, to meet the tidal wave of demand that is about to sweep across North America.
After the campaign promises of Prime Minister Justin Trudeau, the Canadian government is poised to fully legalize and regulate cannabis next year, permitting adult recreational use.
California, the largest pot market in the United States, is expected to follow suit. Included in today's commentary: Insys Therapeutics (NASDAQ: INSY), Scotts Miracle-Gro Co (NYSE: SMG), Zynerba Pharmaceuticals (NASDAQ: ZYNE), Innovative Industrial Properties (NYSE: IIRP), Teva Pharmaceuticals (NYSE: TEVA)
Countries throughout the world are embracing cannabis as a legal form of recreation, similar to alcohol and tobacco. The global pot market could be as big as $31.4 billion by 2021, with the United States's market share shrinking from 90 percent to only 57 percent.
Investors looking for a cannabis score could soon need to look outside the United States. Plus, they need to be conscious of how supply limitations and a rapid increase in demand in Canada next year could create opportunities.
Right now licensed producers in Canada only provide about five percent of the potential recreational demand, serving a medical marijuana patient base of 200,000 people. But with legalization next year, Canada is expected to add to that base millions of recreational consumers. In addition, the number of medical marijuana patients has already tripled in the last year and continues to grow seven percent month over month.
With full legalization in place, Deloitte estimates the total economic impact could be $22.6 billion annually, more than the combined sales of beer, wine and spirits. And Canadians will be able to order pot to their very door, allowing for easy consumption on a scale never before imagined.
One company that is well positioned to take advantage of those opportunities is Cannabis Wheaton Income Corp. (CBW; CBWTF) the world's first "streaming cannabis company."
The company is prepared to do it all, providing capital to licensed producers of cannabis for their facility buildouts and facility expansions in exchange for a royalty stream of cannabis production and a minority equity interest.
Canada may be on the cusp of a cannabis revolution. Here are five reasons why investors should be watching Cannabis Wheaton (CBW; CBWTF) very closely.
#1 Unique Streaming Approach
Cannabis Wheaton is driven by a unique business model: taking a leaf out of Netflix's book, it is the first company to propose "cannabis streaming", bank-rolling the growth plans of licensed producers, a business model commonly found in the mining sector.
Cannabis Wheaton actually took its name from Silver Wheaton, a large and well-known mining firm.
Here's how it works. Cannabis Wheaton partners with licensed producers looking to scale up quickly to meet increased demand. In exchange for its services, Cannabis Wheaton receives a small portion of equity in the producer and royalties as a percentage of product produced, to distribute or sell to other partners or through its own distribution channels.
The company already has partnerships with 39 clinics, with access to over 30,000 registered medical marijuana patients. Partnership agreements have been signed with 17 facilities across six Canadian provinces for cannabis production, with a combined 1.4 million effective square feet of growing space.
Cannabis Wheaton is building a pan-Canadian network of streaming partners, forming connections between producers and distributors and bringing the young industry together, just as it prepares for a potential revolutionary expansion. Think of it as an "incubator" or "accelerator" for potential cannabis producers and distributors, a program that will help Cannabis Wheaton grow its profile and curate future streaming partners.
#2 Rapid Scaling Upwards
The rapidly improving environment for cannabis companies in Canada, along with the fact that no other major industrial nation has come so far in legalizing and regulating cannabis, means that Canadian companies like Cannabis Wheaton are poised to become the new cannabis "multi-nationals."
Only a few companies have access to enough funding to meet such demand.
Cannabis Wheaton (CBW; CBWTF), thanks to its innovative streaming structure, can raise the capital and, via its streaming partners, produce the product necessary to meet surging demand, in Canada and elsewhere. It's already begun to rapidly expand its profile, in anticipation of Canada's expected nation-wide legalization and regulation of cannabis.
What Netflix is to movies and TV series, Cannabis Wheaton could be to pot.
Last month, the company completed a private placement of convertible debenture units for $35 million, additional capital that it can pump into existing and new streaming agreements.
Cannabis Wheaton recently announced a $10 million debt financing deal with Beleave Inc., the parent company of a licensed producer, built around a novel debt instrument dubbed the Debt Obligation repayable in Product Equivalent, or "DOPE Note".
The DOPE Note model allows Cannabis Wheaton to loan Beleave up to $10 million and receive repayment in cannabis, which can be sold by Beleave to its patients and/or customers or the company can sell on to other distributors. The first $5 million has already been advanced.
The company also has a deal, subject the changing regulations, with a convenience store chain that has over 350 stores, giving it a 10-year exclusive right to supply cannabis.
Cannabis Wheaton is expanding its profile rapidly. And with over $35 million in the bank, its resources and attractive streaming model should allow it to continue that expansion.
#3 Management Expertise
Cannabis Wheaton (CBW; CBWTF) has a stellar team at the helm, an experienced group of cannabis experts with enough market savvy to take full advantage of Canada's changing regulations.
CEO Chuck Rifici is a well-known figure in the cannabis industry, the co-founder of Canada's largest government-sanctioned marijuana producer, Canopy Growth Corp., and the man who took it public in April 2014. Canopy has a $3.7 billion market cap and is the largest public cannabis company in the world.
A pioneer of the legal pot trade, Rifici has also sat on the board of a number of industry standouts, including Supreme Pharmaceuticals Inc. (FIRE), CannaRoyalty Corp. (CRZ) and Aurora Cannabis Inc. (ACB).
Cannabis Wheaton is well positioned to navigate the regulatory environment. Rifici and Dykstra can count on legal support from industry expert Hugo Alves, a former partner at Bennett Jones LLP, founder of the firm's Cannabis Group and another industry pioneer and now President and Director of Cannabis Wheaton.
With this management team in place and its unique business model to back it up, Cannabis Wheaton is better positioned than any other firm to take full advantage of the coming cannabis boom.
#4 Upcoming Legislation and Looming Supply Shortages
Crucial to Cannabis Wheaton's (CBW; CBWTF) rise is the changing legal environment in Canada, particularly the expected legislation that will effectively legalize recreational pot use throughout the country.
Trudeau said in his election campaign in 2015 that he hoped to legalize marijuana, and his government appears on track to deliver on that promise.
It is expected that the law will be changed by mid-2018, opening up all of Canada to legalized cannabis. That means demand is expected to spike, big time.
And right now, cannabis producers are in a tight spot. Canada right now has 80 licensed producers with a small number being authorized to sell cannabis, who grow about 31,000 kg of pot, a mere 5 percent of demand.
And Cannabis Wheaton, thanks to its streaming model, access to capital and market expertise, is well positioned to exploit the need for future expansion.
#5 Massive Opportunity in Recreational Use
Up until now, the story in cannabis has been the medical marijuana market: with pot still criminalized in most industrial countries, players and investors have had to pick their battles, finding openings in the regulatory spider-web in order to squeeze out revenue.
That's could be all about to change.
Cannabis Wheaton (CBW; CBWTF) has taken advantage of the excitement to scale up its activities. It has partnerships with a pharmacy chain and a convenience store chain, and is preparing the way for online ordering.
The company launched a new media blitz, hosting a networking event at the Las Vegas MJBizCon 2017 Cannabis Conference.
Cannabis Wheaton won Start-Up of the Year Award at the 2017 Canadian Cannabis Awards, while CEO Chuck Rifici also won Innovator of the Year award at the same gala.
The company's profile is rising, fast.
The state of California, one of the largest cannabis markets in the world, is expected to begin selling recreational pot next year. By some estimates, the legal cannabis market in North America could be $24.5 billion by 2021.
While federal law in the United States may take some time to change, you can be sure that Germany, Ireland, France, the United Kingdom, Brazil, and a host of other countries will take notice and may also join the cannabis craze.
Where there's smoke, there's fire. And Cannabis Wheaton (CBW; CBWTF) is a company which could become red hot in the months to come. If investors want to get in on the action, they need to move. Now.