Stealth is often a winning strategy in highly competitive industries.
But does it offer a competitive edge in the multi-billion-dollar industrialized cannabis business? After all, most publicly traded Canadian cannabis companies take the opposite tack. They signal their every move with flurries of puffed-up press releases.
However, such corporate posturing is more than just hubris. It also serves as a very effective strategy for ensuring a high valuation for a company’s share price.
As a consequence, all too many cannabis companies now have over-valued market capitalizations that have become increasingly hard to justify, especially in a drifting summer market for cannabis stocks.
Also, their inability to keep their cards close to their chest can weaken their hands in the high stakes game of earning meaningful market share among the world’s most lucrative cannabis markets.
Ascent Industries Corp. (CSE: ASNT) is a rare exception to this brash corporate culture.
Headquartered in Greater Vancouver, this savvy cannabis producer is no over-hyped newcomer with more style than substance – unlike so many other market entrants. On the contrary. Having operated since 2013, the company has already earned its pedigree in the legal cannabis production industry by nurturing a reputation for excellence.
Furthermore, senior management includes individuals who legally produced medicinal cannabis products for quite a few years prior to Ascent’s inception. For the last several years, they have been applying this experience-based skill set to scaling up. Thanks to this hard-earned expertise, Ascent has become well-known as a producer of premium-quality, pesticide-free cannabis and producer of high quality products.
Ascent has also distinguished itself from most of its competition by becoming adept at branding and marketing cannabis dried flower and derivative cannabis products both in Canada and in the US. Significantly, Ascent has already developed invaluable experience by successfully innovating fast-selling products in large recreational markets, namely Nevada and Oregon.
All told, the company has innovated more than 40 unique products under several consumer-focused brands, including hardware devices such as Ascent’s vaporizer pens, sold under the TOKO brand, and Ascent’s recreational focused flower and concentrates branded under The Quarry.
Ascent is also a Canadian early-market entrant in the highly lucrative business of formulating and manufacturing extracted oils. The company has been doing large scale extraction, formulation, merchandising, and distribution for four years – far longer than most of its competitors.
Other branded products that the company has built its name on include gel capsules, tinctures, pre-rolled joints, and even edibles (which Ascent can only legally sell in the US at this time).
These are some of the key reasons why I’m initiating coverage of this dark horse late-comer to the cannabis capital markets.
Fortunately, I’ve picked quite a few stellar performers over the past three years and believe that Ascent will follow their lead. They include Aurora Cannabis, which I recommended at $0.40, as well as one of Ascent’s local rivals, Emerald Health Therapeutics, which I introduced to my readers at $1.35.
Needless to say, both stocks had meteoric rises before settling back at less inflated prices. So Ascent therefore looks to me like a very modestly-priced opportunity relative to its big-picture upside and to industry peers like Emerald Health.
Due to the company’s relatively longstanding status as a vertically integrated cannabis cultivating, processing, marketing, and branding pioneer, Ascent has taken great strides in a few short years.
Best of all, it has kept its head down while quietly executing on numerous accretive company-maker initiatives. And I do mean “company-maker” in the most legitimate sense because these milestone developments have been strategically very significant. In essence, Ascent is a very sophisticated operator, much like an earlier-stage Canopy Growth.
In the meantime, most of Ascent’s peers have to date focussed mainly on making bold promises to keep investors onside -- and then struggled to deliver.
In comparison, Ascent has shown savvy vision and has followed-up by executing at a high level. In the process, Ascent has systematically built a budding business empire from the ground up. So now it boasts a long list of checked boxes, rather than a list of dreamy aspirations.
A Proven Track Record in British Columbia
The company currently operates out of its flagship 25,000 square foot indoor growing and processing facility in the Greater Vancouver town of Maple Ridge, where it can produce 2,500 kilograms of dried flower per annum. Known as the Agrima Botanicals facility, it is also where the company produces high-margin cannabis extracted products.
This is where Ascent also conducts R&D in the areas of optimal cannabis genetics, derivative product development, and production automation. In this regard, Ascent has been conducting research with Simon Fraser University since 2013, focussing on developing valuable intellectual property (IP) of which it owns 100%, including two patents filed and others in process.
However, in Q4 of this year, Ascent will be entering the big leagues by acquiring a 600,000 square foot high-tech automated greenhouse for large scale cannabis production. Known as Agrima Meadows, it is located in the adjacent rural community of Pitt Meadows and will be retrofitted with additional environmental automation technology.
Pictured above is the sprawling 600,000 square feet Agrima Meadows facility in BC.
This is where Ascent is targeting output of around one million grams of dried flower per week with the first crop harvest targeted for Q2 of next year. In total, a maximum output of 60,000 kilograms of dried flower is being forecast – which seems very realistic due to the company’s considerable growing expertise.
This will make Ascent by far one of the largest growers in Western Canada as early as next year. Moreover, the company should have little difficulty in selling its production. In fact, Ascent has been selected as a wholesaler to the BC provincial government. And more importantly, it has signed an offtake agreement with industry heavyweight Aurora Cannabis – totalling up to 26,000 kilograms of cannabis per year.
The Aurora supply agreement involves a minimum order of at least 12,000 kilograms per year for a minimum of five years. Aurora has also tapped Ascent as a potential large-scale wholesaler of high-margin extracted cannabis products. In other words, the world’s largest cannabis company has given Ascent’s product line the ultimate nod of approval.
Ascent is also expanding a custom-built 20,000 square feet campus into 40,000 square feet, which will allow considerable economies of scale to be realized via the high-volume manufacturing of high-margin extracted products. Known as Agrima Labs, this high output GMP-certified facility will be capable of processing over 2000 pounds a day of input material into over two million units a month of gel caps, tinctures, vape pens, and pre-rolls for both the medical and adult-use markets.
This new purpose-built facility will also ramp-up Ascent’s automated manufacturing and sophisticated packaging capabilities. As a side business, Ascent can also act as a subcontractor to other growers by inexpensively packaging and branding the clients’ products – a common practice that is known as white labelling.
An Early Mover Advantage: Inroads into the World’s Largest Markets
The full build-out of Ascent’s growing capacity includes the company’s satellite subsidiary businesses in the US – vertically integrated growing and extracting operations in Las Vegas and Oregon.
Notably, the company’s Las Vegas facility is very similar in its design and capacity to the one that already very successfully operates in Maple Ridge. It is just a little larger at 35,000 square feet. This is where Ascent’s is targeting the production of sufficient dried flower to manufacture up to three million annual grams of extracted oils at full capacity to cater to Vegas’ 40-million-people a year tourism industry.
This emerging story, as well as the company’s business venture in Oregon, will be discussed in greater detail in future articles.
Additionally, Ascent is now expanding into Denmark, which represents a strategic beachhead for Europe’s medicinal market – which is estimated will be worth up to CDN $50 billion when this market is fully mature.
Europe is where the company will benefit the most from being a federally-approved “Licenced Dealer” under the Controlled Drugs and Substances Act (Canada). This is because such a much-coveted designation – which is still rare among Canada’s industrial-scale growers – allows Ascent to command top dollar for its exported products to key overseas markets.
By comparison, Ascent stands to earn more than twice the amount paid to some exporters who do not have this special licence.
In the Company of Unicorns: A Peer to Peer Comparison with Fellow Trailblazer Tilray
The last cannabis producer that took a comparable approach to going public in the aftermath of building a solid, scalable business model was Seattle-headquartered cannabis cultivator Tilray Inc. The company’s current flagship asset is a 60,000 square feet growing operation on Vancouver Island – making Tilray a proximal rival to Ascent.
Admittedly, Tilray has a big war chest of close to CDN $200 million to finance its expansion in Ontario, where it is building a new 566,000 square feet greenhouse in the town of Enniskillen – which will be a little smaller than Ascent’s 600,000 square feet of expanded growing capacity. Nonetheless, Tilray gained an overnight valuation of $2.5 CDN billion when the company went public earlier this summer.
That said, Tilray has been operating under the radar for a long time as a private company, during which time it has developed very strong intellectual property, as well as building a strong brand.
With this in mind, Ascent’s similarities to Tilray speak to the up-and-comer’s big-picture potential. The main differentiator at this juncture is that Ascent is less advanced along the developmental curve in Canada than its deep-pocketed rival.
Investment Summary
To date, Ascent Industries has taken a very disciplined approach to organically developing its business expertise, far away from the glare of the public markets’ spotlight.
Consequently, the company has proven adept at growing pesticide-free, premium-grade cannabis on a large scale. This represent a significant de-risking component to the rolling out of the company’s business model across multiple North American jurisdictions and European nations.
Now that Ascent is publicly traded – as of August 9th – it has easy access to equity and debenture financings to accelerate its global business expansion. That said, Ascent has already made impressive headway in its mandate to be an early-mover in the world’s most expansive, multi-billion-dollar markets, such as the US and Europe.
The cornerstone of the company’s value proposition is its deep expertise in the cultivation of premium-quality, pharmaceutical-grade cannabis. This should ensure plenty of market share in Canada’s fast growing, high-margin medical cannabis marketplace.
The fact that Ascent has a “licensed dealer” designation for exporting medicinal cannabis and cannabis extracts to other nations only strengthens its hand. This should prove to be an especially valuable competitive advantage as Ascent vies over the next few years to build its brand among the European Union’s 28 member states. To this end, Ascent is already expanding into Denmark – one of Europe’s most progressively-minded, cannabis-friendly nations, where it is currently in the application phase for a controlled drugs license, a dealer’s license, and a medical cannabis pilot program license.
Additionally, the company’s proven ability to grow on a large scale to meet the needs of the looming recreational market in Canada, as well as existing ones in the US, should also weigh in its favour going forward.
In total, Ascent’s commitment to both medicinal and recreational markets should translate into about 65 million grams of dried flower output and 12 million grams of extracted oils at full capacity annually.
It’s worth noting at this juncture that medicinal oils currently sell for around $100 a gram, making for extremely generous margins. This area of the cannabis business is where I expect Ascent to really excel.
All told, Ascent is a rising force to be reckoned with in Canada’s medicinal and recreational cannabis markets. Additionally, the company’s aspirations to rapidly expand into international markets (including its US operations) attest to a savvy corporate mindset that has so far served shareholders very well.
Accordingly, Ascent is destined to become a very well-known story in the investment community. And if management continues to execute with the speed and skill they have demonstrated to date, there should be no shortage of news flow in the coming months. For instance, as this article went to press, Ascent announced its entry into the medical clinics business to better serve prospective cannabis patients.
The advent of plenty of upbeat news, matched with an expected resurgence of the cannabis asset class this autumn, should serve as a powerful catalyst to higher share price valuations. In other words, value-oriented investors would be wise by putting this modestly-priced, undervalued stock on their radar.
About the Author: Marc Davis has a deep background in the capital markets spanning 30 years, having mostly worked as an analyst and stock market commentator. He is also a longstanding financial journalist. Over the years, his articles have also appeared in dozens of digital publications worldwide. They include USA Today, CBS Money Watch, Investors’ Business Daily, the Financial Post, Reuters, National Post, Google News, Barron’s, China Daily, Huffington Post and AOL.
FULL DISCLOSURE: Ascent Industries is a paid client of Stockhouse Publishing.