The Bull case- 2019 will provide a Bear case to follow: omitting the Canadian strategy as it is a follow on play and no significant revenue or developments are expected for 2019.
- concerns of lengthy delays in Cathedral City construction. The construction of this state of the art advanced facility is getting near completion and based on the visible progress, it should be completed towards the end of the 2nd quarter or 3rd quarter at the latest. The extended development time will be the same for whomever else builds one, and it looks like the only other one planned to this level of sophistication by High Hampton has been put on ice, as it is cost prohibitive for them, and they now plan a modular incremental approach, similar to what Sunniva has planned for the Okanagan Valley to support the NHS clinics with high margin, medical products.
- 1st Mover advantage- cGMP compliant cannabis is a prerequiste for all pharmaceutical products, of note there are only (6) LP's in Canada that have this designation and they are all involved in developing international strategic business plays, as medical cannabis (cGMP) is mandatory for all the European countries' markets to date. Sunniva will be the first US company to provide this product certification at scale and at low cost with the completion of their $150 million greenhouse. Think Canopy in Canada, control the supply, control the market. With federal legalization still a couple of years away, state to state imports of product are illegal and affords Sunniva serious advantages in that regard.
- missing the party- the party is over in Canada, hangovers have begun. The music is just beginning in the US. As the development of the facility drags on, Sunniva has focused resources on developing significant revenue from their high margin extraction vertical. Originally, the Sunoil facility was planned to convert 30% of flower and all the biomass from the new cultivation facility into various products, but have taken this opportunity (ie:extended development times) to secure large supplies of clean biomass, at very low costs, and are now running the extraction facility near full capacity, resulting in the latest revenue forecast of $55-60 million USD for 2019. Sunniva is currently expanding their extraction capacity as a result to service the upcoming facility as well as maintain the current strategic business vertical with key suppliers. This is an option that was not afforded to Canadian LP's during their buildout, not to mention prohibited vertical integration rules (government wholesale prices) and delays in higher margin edible product legalization.
- suppressed market cap due to extended business buildout timelines- the upended Canadian buildout strategy and long buildout timeline in California have left many investors looking elsewhere for some quick gains and lack of faith in execution from Sunniva. The result has been a severly compressed SP/ market cap when compared to potential forward multiples of other companies in the same markets. The latest debenture closings show family members, insiders, friends, and business associates being given the opportunity to invest and have significant skin in the game. For those that know, this is a very bullish sign and indicates derisking is virtually complete and they will be putting their best foot forward here regarding execution, media blitzes, and institutional involvement. The target for Sunniva is now very close, so the chances of missing timelines and revenue estimates are minimal now, in fact the short data volume suggests single digits so far this week. The next operational update (March 27-28) will give clarity on Q1 advancements and revenue/margin forecast validity. Very little has been priced into the SP for all the aforementioned reasons, so it could get very interesting shortly.
- Branding is key. it is very apparent that Sunniva will enter the market with an existing top brand as a strategic partner, out of the gate. The new VP of marketing is very intimate with the California market and the evolution of cannabis with all its attributes and potential. Suspect she is hosting focus groups with various groups to determine the best products to launch the follow on House of Brands. Both the US and Canadian cultivation teams have vast experience in this sector before it became legal, so should come out of the gate with strong products.The latest Sunniva press releases indicate as much in terms of market acceptance. Expect these Sunniva brands to become popular, then used to exploit other markets, such as other states, Canada, global expansion.