BUSINESS HEALTH OPINION

The Generational Growth Opportunity for Canadian Cannabis

The medical cannabis business is booming in Canada, projected to ramp up and exceed $8 billion within seven years. The growth trajectory shows no signs of slowing yet pales in comparison to the global opportunity. A recent analysis by Eight Capital, a Toronto-based investment bank, targets the potential Canadian international medical cannabis market at a staggering $142 billion over the next 15 years (http://nnw.fm/aFP0h). Licensed producers in good standing are best positioned to reap immense rewards from this generational growth opportunity. Of these, ABcann Global Corp. (TSX-V: ABCN) (OTC: ABCCF) (ABcann Profile), among Canada’s first licensed producers, is already considered one of its premiere growers. Others vying for position include OrganiGram Holdings, Inc. (OTC: OGRMF) (TSX-V: OGI), Supreme Pharmaceuticals, Inc. (OTC: SPRWF) (TSX-V: FIRE), Maricann Group, Inc. (OTC: MRRCF) (CSE: MARI) and iAnthus Capital Holdings, Inc. (OTC: ITHUF) (CSE: IAN).

With strict laws enacted in 2016, Health Canada now oversees the licensing process, monitoring and compliance of commercial medical cannabis producers. Licenses are difficult to acquire and frequent inspections hold producers to stringent standards. Health Canada now conducts thorough reviews of applications to ensure compliance with regulations and closely monitors licensed producers to ensure compliance with such strictures as personnel security measures, good production practices, packaging, shipping, record keeping, and importantly, import and export requirements. Global demand, especially in Germany, is growing at an ‘insane’ rate.

ABcann Global Corp. (TSX.V: ABCN) (OTCQB: ABCCF) sees Germany as a gateway to vast European and global opportunities. “We’re absolutely at the forefront,” recent CEO Aaron Keay told Marijuana Business Daily. “We look at Europe as a significant part of our strategic plans for expansion, in addition to what we’re doing domestically.” Keay, now focused on global operations, confirmed that ABcann expects to acquire a distribution license and start exporting to Germany in the third quarter.

Meticulous specifications in the production of its pharmaceutical grade, plant-based medicines positions ABcann at the vanguard of Canadian global exporters of medical cannabis products. ABcann’s modular approach to systems technology eliminates scale-up risk and enables ABcann to expand anywhere in the world and still maintain consistency and quality of product. Maintaining standards designed to exceed Canadian government requirements, ABcann Medicinals grows plants only in small batches to create controllable, consistent and predictable yields. The plants are nurtured in controlled environmental chambers to deliver repeatedly dependable results with each harvest. Chemical and pesticide free, ABcann produces medical cannabis that effectuates the same pharmaceutical response with each use. Such quality and consistency are prerequisites for importers of medicinal cannabis, especially in Germany that reimburses medical cannabis under its national health system.

In a testament to consistency, quality and immense global opportunity, Cannabis Wheaton, which invests in and supports a wide range of cannabis cultivation companies, announced in a June 2 press release a $30 million investment into ABcann for current operations and expansion to a 130,000-square-foot facility (http://nnw.fm/CHBi5). Cannabis Wheaton further committed to fully fund, with certain conditions, the construction of an additional 50,000 square feet of ABcann’s Kimmett Facility. The 180,000 square feet of funded production capacity places ABcann among the top of all licensed producers. The $30 million investment is being made in two tranches each at C$2.25 per share. The pricing represents a significant premium to the current price of $0.78 US (about C$1.00) per share.

With a market capitalization around $82 million, ABcann presents great value for Cannabis Wheaton and should be on the radar of investors in this space. Other Canadian licensed producers carry much higher market valuations. Even at a C$2.25 per share valuation (about $180 million US market cap) ABcann still represents a compelling value in the industry with many licensed producers commanding valuations two to four times higher.

One such company carrying such a lofty market valuation is OrganiGram Holdings (OTCQB: OGRMF). With a market cap in excess of $233 million, OrganiGram will have over 220,000 square feet of medical cannabis production space at full build out. Even though its a federally licensed producer, OrganiGram was caught up in two Health Canada recalls of almost all its products sold in 2016 after residual levels of two banned pesticides, myclobutanil and bifenazate, were found and company’s organic certification was suspended until compliance to requirements was demonstrated. Health Canada released a public recall of all products produced between February 1, 2016, and December 16, 2016, which included both dried marijuana and cannabis oil. OrganiGram took remedial measures to rectify the problems, is now back in business after losing a year’s revenues and still carries a $230+ million valuation.

Supreme Pharmaceuticals (OTC: SPRWF) has a hefty market cap of around $250 million and is trying to become a leading supplier of affordable medical cannabis by applying commercial agriculture practices to medical cannabis production. Supreme Pharmaceuticals expects to produce 10,000 kilograms of cannabis in 2017, with an estimated value of $35 million. At the end of 2016, the company raised $55 million through a convertible debenture that pays investors 10% annually until maturity in January 2019, at which point the lenders can convert into equity at $1.30 per share which may prove quite dilutive.

Licensed in 2014 and with first sales in 2015, Maricann Group (OTCQB: MRRCF) is now expanding its cultivation, extraction, analytics and production facilities for growth into the adult-use cannabis market in Canada, and longer term, into mature and developing cannabis markets worldwide. In August the company reported Q2 sales declined by 27% from previous year levels and down 42% compared to Q1. Lacking environmental controls, Maricann attributed the shortfall to a March windstorm that allowed sand to enter its greenhouses and ultimately caused destruction of all impacted plants.

With a different approach and no licensed Canadian producers, iAnthus Capital Holdings (OTCQB: ITHUF), through its wholly owned subsidiary iAnthus Capital Management, LLC, offers investors diversified exposure to licensed cannabis cultivators, processors and dispensaries in the United States. iAnthus currently owns, operates or has partnered with marijuana license holders in Massachusetts, Vermont, Colorado and New Mexico. Founded by entrepreneurs with experience in investment banking, corporate finance, law and healthcare services, iAnthus provides a combination of capital and operating and management expertise for its companies. The diversification, while limiting downside in the space, severely constricts upside potential and is reflected in the paltry $36 million market valuation.

Canadian medical cannabis companies are uniquely primed and positioned to tap a generational global growth opportunity. Well-capitalized and largely free from competition, Canadian licensed producers are set to gain a first-mover advantage in new international markets as more and more countries legalize marijuana for medical use. Fortunes will be made as international medical cannabis markets balloon to $142+ billion over the next 15 years. To maximize profits in this space, investors should have direct exposure to licensed Canadian medical cannabis producers.

For more information on ABcann Global please visit: ABcann Global (TSX.V: ABCN) (OTCQB: ABCCF)

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