As the official legalization of cannabis in Canada and in other markets approaches, the cannabis sector’s top players are unveiling their best plans with which to dominate in the newly legalized environment that they’ve been patiently waiting for.
Depending on the market, whether it be a nation like Canada or Australia, or newly-legalized US States like West Virginia, the advantages of vertical integration in the space are numerous once allowed to operate in that capacity.
Cannabis players both large and small are jockeying for their positions from top to bottom of the commercialization process, including Aphria Inc. (TSXV: APH) (OTC: APHQF), Aurora Cannabis (TSXV: ACB) (OTC: ACBFF), Emerald Health Therapeutics, Inc. (TSX.V: EMH) (OTC: EMHTF), Radient Technologies Inc. (TSX.V: RTI) (OTC: RDDTF), and Abattis Bioceuticals Corp. (CSE: ATT) (OTC: ATTBF).
At present, multi-billion-dollar companies like Aphria and Aurora have the weight to throw around on deals with specialists on things like marketing, distribution, and/or extraction—like the deal that Aurora did with Radient in late 2016, that has since blossomed nicely.
Whereas, the market is seeing an emergence of mid-sized companies like Emerald Health and Abattis (who have also partnered together through jointly-owned subsidiary Northern Vine Labs), who have built their companies through taking part in seemingly every aspect that the legal cannabis sector has to offer—from cultivation, to branding, to even cryptocurrencies.
Most recently, Abattis acquired a majority stake in BC Gulf Islands-based Gabriola Green Farms Inc., which is noted as an ideal cannabis cultivation site.
The acquisition fits with the company’s strategy of becoming a full-service cannabis company, which follows its latest previous move when it acquired a significant stake in a cryptocurrency tied to the performance of a suite of portfolio cannabis companies.
Abattis continues to be a model example of when a company participates in several aspects of the sector, including beverages, lab testing, extraction, marketing, and now also cultivation.
Now the industry will watch as other players including Aphria Inc. (TSXV: APH) (OTC: APHQF), Aurora Cannabis (TSXV: ACB) (OTC: ACBFF), Emerald Health Therapeutics, Inc. (TSX.V: EMH) (OTC: EMHTF), and Radient Technologies Inc. (TSX.V: RTI) (OTC: RDDTF), make their own versions of vertical integration along the road toward widespread legalization.
CANNABIS’ VERTICAL-INTEGRATION MODELS
As the sector and its investors witness the ongoing storm of mergers and acquisitions—as cited by CBC News, the Financial Post and Baystreet in the last few months—companies that may not be vertically-integrated at the moment, may become so with yet-to-come acquisitions in the lead up to legalization.
Among the top players in the sector, Aurora Cannabis (TSXV: ACB) (OTC: ACBFF) seems to have made the most waves as of late with its series of major acquisitions. Now that the company is worth over $4 billion, it has plenty of wings and specialists involved from planting to checkout counter—including extraction partners Radient Technologies Inc. (TSX.V: RTI) (OTC: RDDTF) whom Aurora holds just under a 20% stake in.
Recently, Aphria Inc. (TSXV: APH) (OTC: APHQF) was instrumental in orchestrating a deal between Tokyo Smoke and DOJA Cannabis to form a new brand and hold a stake in a new company called Hiku, which has aims to become the “Starbucks of the cannabis industry.”
But it’s groups like Emerald Health Therapeutics, Inc. (TSX.V: EMH) (OTC: EMHTF) and Abattis Bioceuticals (CSE: ATT) (OTC: ATTBF) that took on the mantle of vertical cannabis integration from their outsets.
Emerald Health made a splash last summer when it struck a cultivation deal with Village Farms in Delta, BC.
Abattis Bioceuticals now has a cultivation deal of its own, with Gabriola Green Farms Inc., which comes with significant growing-condition advantages.
Both Abattis and Emerald Health share an interest in the world-class Northern Vine Labs which can not only extract cannabinoids from plant matter, but can test and qualify cannabis supplies from other larger players.
Before the partnership, Northern Vine was first a subsidiary of Abattis along with the company’s marketing and distribution wing, Vergence Naturals. Now Abattis has positioned itself as a model of cannabis vertical integration.
ABATTIS AS A FULL-SERVICE SPECTRUM
Through the Gabriola acquisition, Abattis appears to have completed the circuit of vertical integration, now going from plant to consumer.
Gabriola Island is located among the Gulf Islands, known to be one of Canada’s best climates for growing, including production of vegetation not found in other parts of the country like olive trees, lemons, and other orchards that require milder winters.
“This is one of the most significant steps our Company has taken towards becoming a full-service cannabis company,” stated Rob Abenante, Abattis President and CEO.
When it acquired a 49% stake in private company CannaNUMUS (who also own a small stake in Gabriola Green Farms), Abattis Bioceuticals (CSE: ATT) (OTC: ATTBF) set out on a joint goal of building toward an initial coin offering (ICO), and further capitalizing on a hot market that’s coming of age.
Couple these recent acquisitions with other major deals Abattis has made, such as the ABLE BC deal, embarking on a path towards a cannabinoid-infused beer and other beverages, bringing to North America breakthrough extraction technology, and acquiring one of the top CBD vape pen products on the market today.
“After successfully obtaining a license through Gabriola, we intend to not only cultivate marijuana, but more importantly sell extracted cannabis products, which will complete our full downstream service offerings,” added Abenante.
Taking the high-altitude view over what Abenante and his Abattis team have assembled so far, one can see cannabis vertical integration in action.
How that model will perform once largescale legalization is officially in place, is still to be seen—however, Abattis now has formidable exposure to each part of the cannabis sector, and the market will decide how profitable that spread will be.
COMPARABLES
Aphria Inc. (TSXV: APH) (OTC: APHQF)
Aphria is one of Canada’s lowest cost licensed cannabis producers, specializing in the production, suppy, and sale of medical cannabis. The company offers sativa, indica, and hybrid medical marijuana products, as well as cannabis oils. It also provides support services in the form of medical consultations, group therapies, and rehabilitation to veteran and first responders. The company sells its products through its online store or phones, as well as engages in the wholesale shipping of medical marijuana plant cuttings and dried buds to other licensed producers. Aphria Inc. is headquartered in Leamington, Canada.
Aurora Cannabis (TSXV: ACB) (OTC: ACBFF)
Aurora Cannabis boasts the second highest square footage approved for cannabis production in Canada. Together with its subsidiaries, Aurora produces and distributes medical marijuana products in Canada. The company’s products consist of dried cannabis and cannabis oil.
Aurora is the only cannabis producer located in the province of Alberta, giving the company a cost advantage through its free use of fresh mountain-fed water used on site, and housed under the lowest corporate tax rates and power rates in Canada. Capitalizing on numerous farm credit programs provided by the province, Aurora has positioned itself as arguably the lowest cost-per-gram licensed producer in Canada. Aurora became a licensed producer in 2015, and is based in Edmonton, Alberta.
Emerald Health Therapeutics, Inc. (TSX.V: EMH) (OTC: EMHTF)
Emerald Health, together with its subsidiaries, produces and sells medical marihuana and cannabis oils in Canada. The company was formerly known as T-Bird Pharma Inc. and changed its name to Emerald Health Therapeutics, Inc. in June 2015. The company has a joint venture partnership with Village Farms for greenhouse space, and with Abattis Resources for their jointly-owned subsidiary, Northern Vine Labs. Emerald Health Therapeutics, Inc. is headquartered in Victoria, Canada and is a subsidiary of Emerald Health Sciences Inc.
Radient Technologies Inc. (TSX.V: RTI) (OTC: RDDTF)
Radient researches, develops, and commercializes technology for the extraction, isolation, and purification of soluble products from various materials using microwave technology in the United States and Canada. It extracts natural compounds comprising lipids, such as essential fatty acids, PUFAs, saw palmetto, edible vegetables oils, and algae oils; glycosides, including flax, sennosides, rosavins, and terpene acid and pregnane glycosides; and alkaloids comprising cyclopamine, black pepper, and opiatesz. It serves the pharmaceutical, food, beverage, natural health, personal care, and biofuel markets. The company was founded in 2001 and is headquartered in Edmonton, Canada.
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