Beacon Analyst Update - Sunniva May 30, 2018 - TARGET $16.50 Sunniva Inc. (SNN-C)
Onwards and Upwards with Demonstrated Ability to Execute
Doug Cooper, MBA. David M. Kideckel, PhD, MBA
SPECULATIVE BUY (unch.) $16.50 (unch.) May 30, 2018 On May 29th, 2018, Sunniva announced receipt from Health Canada of the Confirmation of Readiness (“COR”) for a License under the Access to Cannabis for Medical Purposes Regulations (“ACMPR”) for the wholly owned subsidiary, Sunniva Medical Inc. (“SMI”). The next step for the company will be an inspection by Health Canada upon site readiness in order to commence cultivation.
The license and the expected completion of the Sunniva Canada Campus will position Sunniva as a significant supplier to the rapidly growing Canadian cannabis market. Sunniva previously announced a take or pay supply agreement with Canopy Growth Corporation (WEED-T, Buy $37.00 TP). Under the terms of the initial two-year agreement, which includes the distribution of Sunniva branded products, Canopy will purchase approximately 45% of Sunniva’s annual production capacity, representing 45,000 kgs of dried cannabis annually commencing H1 2019.
Sunniva also announced that SMI has received development approval from the Regional District of Okanagan-Similkameen for construction of the Sunniva Canada Campus, which commenced in early May 2018, on its previously announced purchased 126-acre site in Okanagan Falls, British Columbia. Sunniva is currently finalizing the financing via bank and subordinate debt for the planned state-of- the-art 740,000 sq. ft. facility, designed to meet current Good Manufacturing Practice (“cGMP”) standards.
Sunniva will build the facility according to the design submitted and will leverage its experience from the cGMP flagship greenhouse facility in California, which is currently 5 months into the construction cycle and is expected to produce over 100,000 kgs of premium medical cannabis annually upon completion. Sunniva has chosen a number of vendors to complete the Canada Campus project, including world-leading engineering and construction firm EllisDon Corporation.
We view Sunniva’s achievements as significant developments for the company, and were built into our milestone expectations in our initiation report. These developments demonstrate that Sunniva has the ability to execute in an increasingly competitive environment and with clear timelines set out. By leveraging its expertise from its flagship greenhouse facility in California, the company is paving the way for success.