via NEWMEDIAWIRE – CFN Media Group (“CFN Media”), the leading
agency and financial media network dedicated to the North American
cannabis industry, announces publication of an article
discussing The Supreme Cannabis Company (TSX-V: FIRE) (OTCQX:
SPRWF) (FRA: 53S1).
The Canadian adult-use cannabis market is set to launch in just
over a month, on October 17, 2018. Deloitte projects the domestic
cannabis market has the potential to reach C$22.6 billion over the
coming years. As such, it is not surprising that an increasing
number of prospective companies are looking to enter the space –
already there are more than 100 licensed producers approved by
Health Canada, and there are more in the pipeline.
This obviously raises questions about the supply situation in
the market. As a result, investors have recently turned their focus
to distribution agreements or “off-take” in assessing the prospects
for cannabis companies. Industry leader Canopy Growth has
been leading the discussion in this area with its
“Distribution Drives Revenue, Capacity Alone Does Not” narrative.
Key Indicators of Success
Canadian cannabis companies offer a unique valuation challenge.
Their current financial picture represents their participation in
the country’s legal medical cannabis market – a sizable but still
relatively small market compared to the domestic illicit
recreational market. Yet, with the flip of a “legislative
switch” on October 17, these cannabis companies have access to an
existing and massive potential end market – with distribution being
facilitated by the government. So how do you try to value these
cannabis companies given this catalyst?
For some time, one of the key indicators investors have used in
the cannabis space is the concept of funded capacity—effectively
how much cannabis they can grow. The logic being the more you grow,
the more you will make. Funded capacity has been a fair measure in
absence of more tangible revenue and earnings estimates.
Provincial Supply Agreements to Drive Revenue
However, at this point, almost all of the provinces have
announced supply agreements with various licensed producers –
setting out who will have product on “shelves” on October 17 and
providing insight to who will be generating revenue come
legalization.
The licensed producers that don’t have their products on the
shelf when the doors open in October will face a steep challenge
moving forward — the shelf will be largely “filled” across the
country and for a new product to be listed, it will have to ‘bump’
out an existing product – no easy task as the liquor industry,
where product turnover tends to be low, would suggest.
At the same time, the first-movers that are on store shelves
could have a significant advantage. They will have an opportunity
to establish their brands, fine-tune existing product offerings,
and leverage recreational market revenue to pursue other
opportunities, whether fortifying and expanding their domestic
market positioning or pursuing global opportunities. Only a select
handful of companies have signed supply agreements with more than
half the provinces, including industry leaders: Canopy Growth
Corp., Aurora Cannabis Inc, Aphria Inc., and Tilray.
Many of these companies are large and well-known names in the
space, but there are a few other companies in the mix. The
Supreme Cannabis Company and Organigram Holdings Inc. have
both secured six supply agreements with Canadian provinces, while
CannTrust Holdings has secured five supply agreements. These
companies have a similar national presence as the more recognizable
competitors, but have much lower market capitalizations.
Investment Opportunities
Companies like The Supreme Cannabis Company Organigram Holdings
Inc. have broad distribution across Canadian provinces and more
attractive market capitalizations than their more recognizable
competitors.
With a market cap of just over C$500 million and C$800 million,
respectively, The Supreme Cannabis Company and Organigram Holdings
trade at a fraction of the market capitalization of the industry
majors, despite their strong distribution footprint, solid sales in
medical channels, and strong management teams.
The Supreme Cannabis Company, in particular, has generated
significant activity in recent weeks as they establish themselves
as the only major licensed producer focused exclusively on premium
brands and products and with coast-to-coast distribution. It is
worth noting that on September 10, they announced they had entered
into a supply agreement with Tilray – another positive
indicator they have been successful in establishing themselves as
the one of the premium brands in the market.
The Supreme Cannabis Company has not reported its fourth quarter
and fiscal year-end financial results for the period ended June 30,
2018 yet, investors may want to watch closely for those
results.
For more information, visit the company’s website
at www.supreme.ca.
Please follow the link to read the full
article: http://www.cannabisfn.com/distribution-determine-winners-recreational-cannabis-market/
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The above article is sponsored content. Emerging Growth LLC,
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awareness. Please follow the link below to view our full disclosure
outlining our
compensation: http://www.cannabisfn.com/legal-disclaimer/
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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: http://www.cannabisfn.com/legal-disclaimer/
Frank Lane
206-369-7050
Flane@Cannabisfn.com