It’s almost here. The legalization of recreational cannabis for adult use didn’t hit the original target of July 1, 2018 – Canada Day. But with the final passage of Bill C-45, nearly a century of cannabis Prohibition will come to an end on October 17, 2018.
Strangely, valuations for most cannabis companies have remained muted in recent months, even after news that this legislation had cleared Parliament. That spells opportunity for investors. How big an opportunity?
Canadians spent an estimated $5.7 billion on cannabis last year according to Statistics Canada, with this consumption spread across an estimated 4.9 million consumers. Thanks to Prohibition, the vast majority of those dollars continue to flow to grey-market and black-market cannabis distributors. Thanks to Bill C-45, that flow of dollars will now steadily gravitate toward legal, licensed cannabis operations – and into the pockets of shareholders of publicly listed companies.
Canadian cannabis companies have been preparing for this day for several years. One Company that is at the forefront in positioning for this looming market (and investment opportunity) is Delta-9 Cannabis Inc. (TSX: V.NINE, OTCQB: VRNDF, Forum). NINE has just released news on a major distribution deal aimed at this market. More on this later. First, some context.
It’s no accident that Delta-9 is one of the prospective leaders as Canada’s legal recreational cannabis market opens up. This is one of Canada’s first licensed producers under Health Canada’s Access to Cannabis for Medical Purposes Regulations. Bill C-45 broadens this authorization to include adult-use recreational cannabis.
However, actual retailing and distribution of cannabis is taking place on a province-by-province (and territory-by-territory) basis, as regulating such commerce falls under provincial jurisdiction. This means developing provincial strategies for penetrating this soon-to-be multi-billion dollar market.
The Company’s Canadian marketing strategy centers around the Prairie Provinces, particularly Manitoba. That’s no accident. Delta-9’s original cultivation facility is located in Winnipeg, Manitoba. Investors wanting broader information on NINE’s operations should refer to a previous full-length Stockhouse feature on the Company, from April 6, 2018.
In partnership with cannabis marketing leader Canopy Growth Corp (TSX: WEED), on February 16, 2018 Delta-9 announced receiving one of only four licenses for the distribution of recreational cannabis in Manitoba. Stockhouse alerted investors to this pending opportunity.
On June 29, 2018, the Company put some meat on the bone. Delta-9 has announced a supply agreement with the province of Manitoba to supply a minimum of 2.3 million grams of cannabis. NINE’s CEO, John Arbuthnot put this into context.
Our goal for the past two years has been to position Delta 9 to become a leader in the legal cannabis industry. For this reason, our efforts have been tightly focused on creating a vertically integrated company that earns higher margins and has guaranteed distribution.
Because we have both production and retail, we believe Delta 9 is very well positioned for the recreational retail market, but we continue to work on expanding our distribution throughout Canada and in areas of the world where cannabis is legal for medical use.
In Canada, Manitoba will be NINE’s foundation for penetrating an already-large market for recreational cannabis for adult consumption. And even at the minimum quantum in this distribution agreement (2.3 million grams), this is a wholesale marketing deal that by itself will generate revenues that project to be between $15 and $20 million.
That doesn’t include retail sales in Manitoba, sales to the rest of Canada, or abroad.
This leads directly back to opportunity – for investors. Even with this news already out, Delta-9 is trading at a very lean market cap of (as of this writing): $121.7 million.
Contrast this with numbers for some of Delta-9’s large cap peers in the Canadian cannabis space. And NINE has already backstopped its Manitoba distribution strategy with an additional supply agreement. On March 15, 2018; Delta 9 executed an agreement with Sundial Growers Inc. That deal encompasses the supply of up to 5 million grams of cannabis and cannabis derivative products – per year – for sale as part of NINE’s Manitoba distribution strategy.
This allows the Company to scale-up its wholesale distribution in Manitoba to whatever level that market will support. This makes the current revenue projection in Manitoba of $15 - $20 million just the staring point for the potential of this branch of NINE’s global cannabis operations.
These operations include a second cultivation facility in Alberta, an additional retail license in Saskatchewan (with a related JV), and national distribution in Canada via Delta-9’s partnership with Canopy Growth and its “Tweed Main Street” retailing. The Company has delivered on their first goal of establishing a strong Prairie and national base.
The time for Canadians to legally purchase cannabis for (adult) recreational consumption is nearly here. The time to invest in this opportunity is now.
www.delta9.ca
FULL DISCLOSURE: Delta-9 Cannabis Inc. is a paid client of Stockhouse Publishing.