Attitudes surrounding cannabis have been steadily softening over the last decade, and now with Canada within a month of full legalization for recreational use, it appears that global acceptance is soon to follow—on not only Main Street, but Wall Street (and Bay Street) as well.
One need not look much further than the newly historic rally witnessed with shares in Tilray Inc. (NASDAQ: TLRY). Just two months after its July IPO, the company is already trading at a premium more than 14 times its IPO price of $17.
New products, and new markets are driving opportunities across the sector for players large and small, including Tilray, Aurora Cannabis (OTC: ACBFF) (TSX: ACB), Canopy Growth Inc. (TSX: WEED) (OTC: TWMJF), Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON), and CROP Infrastructure Corp. (OTC: CRXPF) (CSE: CROP).
Tilray's example of offering a variety of high-quality products to its consumer base is growing trust among doctors, patients in ten countries across five continents. The company is now set to work with the University of California San Diego on a clinical trial to test whether the drug (cannabidiol and tetrahydrocannabinol, better known as CBD and THC) can effectively treat essential tremor, a common neurological disorder that causes uncontrollable shaking.
Now the market is looking at Tilray, as well as Aurora, Canopy, Cronos, and CROP with a new set of eyes. Established legitimacy of the market is now at hand.
BLOSSOMING CANNABIS OPPORTUNITIES
Tilray Inc. (NASDAQ: TLRY)
After announcing a partnership with the University of California San Diego on a clinical trial to test whether CBD and THC can effectively treat essential tremor, a common neurological disorder that causes uncontrollable shaking, Tilray shares went on an incredible hyperbolic run. The rally reached historic proportions, with multiple double-digit climbs, including a 55-percent climb, raising the company's price to more than 14 times its public offering price of $17. Only Tesla Inc. is trading at a higher premium to its IPO price, excluding companies worth less than $1 billion at their debut. Tilray cruised past Canopy Growth to officially become the largest cannabis company in the world at over $28 billion in market cap.
Aurora Cannabis Inc. (OTC: ACBFF) (TSX: ACB)
Aurora Cannabis's name has recently been linked to a possible deal with Coca-Cola, which could be one of the world's largest cannabis beverage deals. Aurora so far has denied anything official being signed, but the market has still taken notice, and boosted its confidence in the company regardless of the denial. Aurora has a growing global footprint, and has already established other partnerships including with payment platforms and distribution outlets. Whether they strike a deal with Coca-Cola does not deter the value that Aurora is gaining for its shareholders.
Canopy Growth Inc. (TSX: WEED) (NYSE: CGC)
Canopy Growth was one of the sector's first superstars, making huge waves with its partnership with Constellation Brands to develop cannabinoid-infused products. Since the original announcement, Constellation has committed yet another $4 billion to Canopy in order to accomplish its goals. Among the new products will be a series of beverages, including those with THC and/or CBD, while Canopy has also hinted a new line of CBD products for pets.
Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON)
Shares of Cronos Group grew by double-digits after it announced a partnership with Aleafia Health to conduct a study evaluating the use of medical cannabis in treating insomnia and daytime sleepiness. Part of the company's surge could also be attributed to its fellow NASDAQ-trading cannabis counterpart Tilray's success. To-date, Cronos didn't receive approval yet to conduct their study (but Tilray did), however investors are keen to see what other developments there can be for medical cannabis.
CROP Infrastructure Corp. (OTC: CRXPF) (CSE: CROP)
CROP Infrastructure's exposure to multiple operations, technologies, and clients gives it a unique advantage that could include a variety of catalysts in the months to come. The company recently indicated a major expansion into the hemp-derived CBD isolates market, as well as a symbiotic move into developing CBD-infused soft drinks. On the company's Nevada Hemp farm, CROP added 750 acres of production land for the 2019 season. Key to the announcement was converting structures on site into an extraction facility to process hemp into CBD isolate.
GRASSROOTS GROWTH THROUGH MULTIPLE CANNABINOID OFFERINGS
Not all cannabis startups take the same route as Tilray (ie. record setting IPOs). In fact, the most common story is still private startups, who scratch and claw their way to relevance through innovation, marketing, and growing off every harvest's yield.
Depending on the market these companies choose to operate within, sometimes access to capital and expertise can be hard to come by. Banks in several markets are a bit leery of the sector, while there are also still a significant number of funds that won't touch it.
Which is where CROP Infrastructure Corp. (OTC: CRXPF) (CSE: CROP) has found its niche, as a facilitator to those entrepreneurs who want to grow-out their dreams.
CROP has built its still-humble empire through financing and building infrastructure for cannabis companies across multiple states, and now across the pond into Europe as well. As it has swiftly and successfully established facilities in California, Nevada, and Washington, CROP has so far also secured exclusivity rights to 55 assets in the US and Italy—including a brand new cannabinoid-infused beverage line, called Canna Drink.
The strategy is quite robust, having established a supply line of cannabis flower in California and Washington State, hemp-derived CBD in Nevada, and a highly marketable product order to manufacture its cannabis-infused products. Most importantly, both the beverages and the CBD isolates themselves present major profit potential that pleases CROP's management.
"The cannabis-infused beverages market has attracted the attention of world class beverage companies as legalization spreads," said CROP Infrastructure Director and CEO, Michael Yorke when announcing Canna Drink. "We see it as a tremendous opportunity for CROP Infrastructure's branding & IP portfolio and as an opportunity for each of our cultivation tenants Globally."
On the commercial front, Canna Drink brings much positive attention. However, on the wholesale side, CROP's profit potential for CBD isolates at its 240-acre (soon to be 1,000 acre) Nevada hemp facility could be the company's largest opportunity to date, especially when breaking down the numbers.
The potential yield on the initial 240 acres of cultivation space is estimated to hit up to 480,000 pounds (or 217,724 kg) of hemp flower—based on a calculation of 1,000 lbs per acre, and two harvests per year. A genetic analysis on CBD content for CROP's hemp was established as greater than 15%, which is reasonable given how several of today's popular US hemp strains can reach levels of 15-20% CBD.
Third-party reports peg current hemp prices between $20-$50 per pound of dried flower depending on CBD content and quality. However, the smart play is in upgrading the product to a high-purity CBD isolate, which can be used in several commercial products, or taken as a medicine on its own.
Hemp with 15% CBD content can be upgraded into a +99.0% CBD isolate at a 100/15, or 6.67 to 1 ratio— +~10% for any recovery loss or 7.337. That would give CROP's 240 acres that are in rotation already the potential to upgrade 217,724 kg of hemp flower into to 29,674kg of CBD isolate.
Using the current price for CBD isolate which is between US$5,000 and US$6,500 per kilogram, could return to CROP a whopping gross revenue between $148 million and $193 million per year. And it's not like the cost of this operation would be that hindering either, as CROP's cost of production is not expected to exceed $700,000. The first harvest is expected in early Q4 this year.
By upgrading of value of the 15% CBD hemp, to that of the +99.0% CBD isolate on its 240 acres already in use, CROP has the potential to upgrade its Nevada facility value well beyond the from as low as $4.35 million on just the hemp flower alone, to potentially $193 million through CBD-isolates.
By developing a state-of-the-art extraction facility, which CROP assures is the next phase of development, the company's profit margins could skyrocket. Which is yet another explanation of how a story like Tilray and Cronos, and others can grow so quickly, as this is just the beginning of the golden cannabis era.
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