The NEXT Big Name in Canadian Cannabis

Legal cannabis? To many people, the relatively rapid transition in marijuana laws across North America may seem almost surreal.

For investors, however, the novelty of legal cannabis has worn off. This surging sector is rapidly becoming big business and (in Canada) the business will get much bigger when recreational use is legalized at the national level. Recent clarification from the Liberal government indicates that a final bill is expected by Canada Day 2018.

Investors already have a broad assortment of publicly listed cannabis companies from which to choose. The business model of these enterprises varies widely, as does their level of development. This makes choosing the best companies a challenging proposition.

For investors looking for established cannabis companies with top-notch management, the highest quality medicinal products, and the best grow-technology, this doesn’t necessarily mean buying into the companies which got their listings first. Illustrating this point is ABcann Global Corporation.

ABcann is working towards its IPO through a “qualifying transaction” (RTO). The shell corporation to be part of the qualifying transaction is Panda Capital Inc (TSX V.PDA.H). In a press release issued by Panda on March 30, 2017, it reports receiving conditional approval from the Venture Exchange to close on the qualifying transaction on or about April 17, 2017.

Some Canadian LP’s decided to rush to market and obtain their public listing as quickly as possible. ABcann’s management team chose the opposite approach. They wanted to perfect their grow technology, optimize yields, and maximize the quality and consistency of the Company’s cannabis products before going public.

It’s a reflection of the disciplined, methodical approach that ABcann takes with all phases of its corporate operations. This leadership starts at the top, with Founder and Executive Chairman Ken Clement. Clement has forged a strong rapport with Health Canada and has initiated numerous strategic partnerships on behalf of the Company.

As shareholders of ABcann we expect big things from the Company and their expansion plans this coming year. As one the most experienced growers among all Canadian licensed producers, we believe they will be leaders in the scalable production of cannabis in the entire industry.

• Michael Gorenstein, President, CEO and Chairman of the Cronos Group (6% strategic shareholder of ABcann)

Clement has plenty of help. CEO Aaron Keay has a background in capital markets. He has spent the last 11 years serving in a broad range of sectors. In that time, he played an instrumental role in raising ~$250 million for an assortment of public and private issuers, forging relationships with the banking and institutional community.

ABcann has additional depth at the board level. John Eason is a career investment banker, with over 23 years of experience in corporate finance and mergers & acquisitions. Paul Lucas was previously President and CEO of GlaxoSmithKline Canada from 1994 to 2012. Now retired, Lucas also serves on the board of several other public companies.

The Company’s base of operations is Napanee, Ontario. Its Phase 1 cultivation facility (“Vanluven”) is licensed for 14,500 square feet of cannabis cultivation. However, understanding ABcann’s cannabis operations requires much more than just knowing the square footage of its operation.

The actual yield from cannabis cultivation varies considerably, based upon a number of factors. Along with the size of the facility, an important determinant is whether cultivation is via a greenhouse operation or indoor growing. According to Botec Analysis Corporation, average yields for a cannabis greenhouse operation are 60 grams per square foot (per year), while indoor cultivation averages 138 grams per square foot.

That’s just the starting point. Lighting, fertilization levels, cannabis strain and other factors can also have a significant impact on average yields. In the five years since obtaining its cultivation license, ABcann has dedicated itself to becoming a leader in cannabis technology.

The Company is working in conjunction with the University of Guelph and Mike Dixon, PhD, in a 3-year, $1.5 million research partnership. ABcann is moving to transform cannabis cultivation from an art to a science. That science begins with cutting-edge computerized monitoring of the entire grow operation. Optimal levels of light, water, and fertilization are consistently allocated to cannabis crops via this monitoring.

Dixon is a Professor of Environmental Science and the University’s Director of the Controlled Environment Systems Research Facility. He is also a member of ABcann’s Advisory Board. Along with several other PhD’s on that Advisory Board he has helped to incorporate standardization into the Company’s cannabis cultivation.

The challenge is to reliably homogenize the environmental experience for the plants so they all behave the same and produce the same medicinal compounds. The only way to achieve that is to grow plants in a very precisely controlled, predictable and reproducible manner.

- Dr. Michael Dixon, University of Guelph

“Standardization” is a pretty dreary word, unlikely to capture the imagination of investors. Arguably, however, bringing standardization to cannabis cultivation is the future of this industry. Why?

It is a growth industry (no pun intended). When legalization of recreational use occurs in Canada next year(?), industry experts and Health Canada itself are anticipating total Canadian demand rising to 600,000 kg’s per year, or more. That number appears conservative. Even at 600,000 kg’s per year, Canada’s recreational market is estimated to reach a value of $8 billion by 2024.



In an industry update; PI Financial estimates total Canadian cannabis production for 2016 at roughly 31,000 kg’s. How will the Canadian cannabis industry fill the future supply gap between 600,000 kg’s and 31,000 kg’s (current production)? That’s an open question, with no answer at present.

The rigorous process of becoming a licensed producer of cannabis in Canada imposes significant barriers to entry and there will be a shortfall of supply in a legalized market in the short-term until production capacities catch up by 2020.

• Canaccord Genuity, November 2016

What is the most-efficient means for scaling up cannabis cultivation? That is a much easier question to answer: standardization.

In the same report, PI Financial notes that new entrants to cannabis cultivation face a steep learning-curve in optimizing their cultivation technology. It estimates an average of three years for new growers to get up to speed. For existing growers looking to expand with new facilities, PI Financial suggests that it will take even established growers half that time (1 ½ years) to optimize a new operation.

The purpose behind ABcann’s quest for cannabis cultivation standardization is to eliminate that learning-curve with respect to new cultivation operations. The standard which ABcann’s management has set for the Company is simple: once a new grow room is brought online, maximum production is expected immediately.

This maximum yield which ABcann targets from Day 1 of a new grow operation is not some mere industry average (as previously spelled out by Botec). The Company is focused on being an industry leader in cannabis yields.



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Through the computer-monitored grow operations of its indoor facility, ABcann is able to produce six harvests per year. That translates into an average annual yield of 250 – 300 grams per square foot.

How will the Canadian cannabis industry fill the supply gap which looms ahead? Ask the management of ABcann: through doubling yields and producing a cultivation model which can quickly and consistently be scaled up to maximum production.

The first big test of the Company’s standardized cultivation model will come immediately after ABcann’s RTO with Panda Capital is complete. Concurrent with this process, ABcann is raising capital through an $8 million, brokered private placement.

Once the new listing is obtained and the financing closes, the Company will immediately commence construction on its Phase 2 expansion: a new 150,000 square foot facility. The new facility (“Kimmett”) is little more than a stone’s throw from the current Vanluven facility in Napanee.

The Kimmett operation is situated on 65 acres of land. The Phase 2 expansion will add an additional 71,000 square feet of cultivation space to the Company’s operations. With ABcann’s consistent harvest yield of 250 to 300 grams per square foot per year, this translates into a potential annual production increase of between 17,750 kg’s per year and 21,300 kg’s per year.

Further down the road? The 65 acres at Kimmett can be built out to a maximum of 1.2 million square feet of cultivation space.

With ABcanns’ Vanluven facility, production is currently at a level of approximately 600 kg’s per year. If it moves to a “double layer” cultivation model (i.e. two tiers of cultivation), this can raise production in the existing cultivation space up to over 1,000 kg’s per year.

The new, Kimmett facility will reflect a twenty-fold increase in production capacity over the medium term. When the Company closes on its current private placement, construction of Kimmett will be fully funded. But ABcann is not just a “quantity” story. There is an equal focus on quality.

ABcann is one of the few LP’s in Canada producing a certified organic product. Even with the rigorous standards implicit with organic growing, ABcann has had no issues with product recalls, unlike other Canadian cannabis producers.



The Company uses no pesticides or fungicides. It maintains the integrity of its organic growing model while still producing cannabis products with potency levels which are competitive with major non-organic producers. Indeed, producing the highest quality “pharmaceutical grade” of cannabis – consistently -- is a fundamental operating principle at ABcann.

With Canada now committed to legalizing recreational use, and with that recreational use representing multiples of the medicinal market, why make producing pharmaceutical grade cannabis a focal point? Standardization.

Standardization is just as important in cannabis cultivation with respect to quality as it is with respect to yield. Being able to scale-up cultivation operations to produce 10,000 kg’s per year, 20,000 kg’s, or more will count for little if an LP cannot maintain its quality as it increases quantity.

As the Company approaches its IPO, ABcann is already presenting investors with an exciting cannabis expansion opportunity, combining the highest standards of quality control with industry-leading yields. This still leaves one question in the minds of potential investors: the bottom line?

Even before the Kimmett facility comes online (with the potential for 20,000+ kg’s of additional cannabis production), management is projecting a transition to profitability, with its break-even point estimated for Q3 or Q4 of 2017.



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Quality, efficiency, growth, profitability: for many cannabis companies these goals represent trade-offs – prioritizing one factor means reducing energies elsewhere.

For ABcann Global these are all concurrent objectives, with management refusing to compromise by promoting one facet of operations at the expense of another. For investors, this is why ABcann is looking like the next big name in the Canadian cannabis industry.

abcann.ca


FULL DISCLOSURE: ABcann Global Corporation is a paid client of Stockhouse Publishing.