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California Dreaming: It’s Finally Show Time for Sunniva

Marc Davis
1 Comment|December 4, 2018

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This is where the rubber meets the road for Sunniva Inc. (CSE: SNN) (OTC: SNNVF).

Finally, this stealthy future cannabis powerhouse is about to become a true seed-to-sale industry leader in the delivery of pharmaceutical-grade cannabis to the world’s most lucrative market, California.
 
Company CEO Anthony Holler feels the company is nearing their original goal to become one of California’s dominant players when he asserts: 
 
“Sunniva has strengthened all vertical pillars within our California cannabis operations in preparation for our large-scale production and with the launching of Sunniva branded products commencing Q1, 2019. With our strategic assets in-place, we will soon demonstrate our ability to become one of the lowest-cost operators, producing pesticide-free, premium-quality cannabis products, while achieving true vertical integration in California.”
 
Not many people are aware that Sunniva has been manufacturing and stockpiling significant inventory within its world class extraction facility in anticipation of its first brand launches at the very beginning of next year. The facility is capable of producing over 500,000 filled vape cartridges a month in addition to large volumes of premium concentrates such as live resin and shatter.  
 
In addition, the company’s sprawling 489,000 sq. ft. greenhouse cultivation facility in Cathedral City, CA is nearing Phase I production status, which will add premium dried flower sales to Sunniva’s full spectrum of branded cannabis product lines. (More on this in a moment.) Accordingly, the company’s overarching goal is to achieve significant revenues and market penetration along an expedited timeline.
 
Why Owning a Leading Distributor is the Key to Earning Major Market Share

To ensure success, Sunniva has just made a strategically shrewd move by acquiring LTYR Logistics LLC, a well-established leader in California’s highly-regulated cannabis distribution business.

LTYR will become Sunniva’s in-house logistics and distribution platform to facilitate the advent of uninterrupted, long-term order fulfillment for its brands and large-scale cannabis production capacity.

Additionally, LTYR’s extensive distribution network, consisting of more than 120 licensed retail dispensaries, will be integral to the successful launch of Sunniva-branded products, commencing in Q1 of next year.   

With a highly experienced management team, LTYR is also a good choice due to the company’s expertise and proficiency in chain-of-custody compliance logistics for the distribution of cannabis products. To this point, LTYR is well-prepared for new “track and trace” regulations that will begin in January.

This is no small undertaking because all legally registered distributors will be required to guarantee the tracking and tracing of all movement of cannabis products in California. Distributors are now also responsible for stringent testing guaranteeing that every product they bring to market is pesticide-free.

Such a highly-regulated new government-mandated system offers Sunniva a considerable competitive advantage over less sophisticated seed-to-sale operators that are expected to struggle to comply with the new distribution regulations. In such instances, dispensaries are sure to take their business to distributors that can guarantee order fulfillment in a timely fashion, such as LTYR.

To further boost Sunniva’s marketing power, the company is also planning to expand and acquire a portfolio of dispensaries all across California, in addition to its flagship dispensary, located at the Cathedral City campus.

Holler comments: “We have been evaluating many retail expansion opportunities to complement our vertical integration strategy.” 

Such expansion-minded thinking is key to Sunniva leveraging off its early-mover advantage in a state that now forbids the sale of cannabis products that contain pesticide residues. With a resolute focus on growing premium-quality, pharmaceutical-grade cannabis, Sunniva is well suited to thriving in California’s new “clean” cannabis marketplace.

To this end, the company expects to produce 72,500 kgs per annum of dried flower cannabis production at peak capacity, with around 10,000 kgs per year of associated trim.

Phase 1 encompasses a 324,000 sq. ft. purpose-built greenhouse facility, translating into 50,000 kgs/year of dried flower capacity. And Phase 2 will involve an additional 165,000 sq. ft of growing capacity, leading to an additional 22,500 kgs/year of dried flower output per annum.

To achieve meaningful economies of scale and other operational efficiencies, the facility is one of the most technologically advanced in the world. The growing process includes a high level of automation, including labor-saving robotics, microclimatic controls, customized nutrients delivery schedule, and 100% water recirculation.

Sunniva’s Flagship Facility: A Near-Term, High-Octane Value Driver
 
It’s a perfect storm of opportunity.
 
The cGMP-certified cultivation greenhouse in Cathedral City is nearing completion, the company’s proximal extraction facility is currently manufacturing premium extracts and stockpiling inventory, and the launch of the Sunniva’s branded products is imminent.
 
This leaves Sunniva well-prepared for success in the California cannabis market as a vertically-integrated seed-to-sale cannabis company. The upstream assets are the most important to the entire value chain, but it’s the downstream segment that ensures the highest margins. This is where Sunniva now aims its focus.
 
The company is aggressively pursuing additional retail assets, and we expect to hear more about this in the coming weeks and months. However, there is currently an under-reported gem that we think adds significant value: the onsite Sunniva flagship dispensary.
 
Significantly, this is a high-end retail store, stocked with the full variety of Sunniva branded products, ensuring maximum margin. The dispensary is attached to the cultivation facility and will have large viewing windows that allow consumers the ability to see world-class cultivation first-hand, as illustrated by the schematic below. The dispensary also has a delivery license.
 
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This is the farm-to-table of the cannabis world. Consumers can see exactly where their cannabis comes from, all while being surrounded by clean, modern, aesthetics that are every bit as inviting as an Apple Store. We view this as having the potential to be a destination for cannabis enthusiasts and tourists.
 
Investment Summary
 
The takeaway of this is that Sunniva has locked down full seed-to-sale vertical integration of premium cannabis products and the brand launch is imminent. It bears repeating that the Cathedral City Campus will begin producing 50,000 kg/year of premium cannabis during Phase 1 of its development, commencing in Q1 of next year.
 
At the same time, the company continues to manufacture and stockpile inventory within its extraction facility for a large-scale brand launch of premium concentrates, filled vape cartridges and disposable pens in early Q1, 2019. Further product lines will include edibles, pre-rolls, beverages, and premium flower from the large-scale greenhouse.
 
Sunniva is already one of the top revenue-generating companies in its sector however with significantly larger near-term revenues on the horizon coming from the extraction facility and the very large, mega-efficient greenhouse.
 
We expect strong revenue growth in 2019 as all Californian assets become fully-operational.  
 
However, we must note that the initial lack of clarity surrounding the timeline of the construction of the company’s Canadian campus has weighed heavily on the stock. This does, however, create a more favorable entry point for investors and can be looked upon as simply an added bonus.
 
The company’s recent proposal to spin out its Canadian assets and focus solely on the Canadian higher margin medicinal market, leveraging its seven cannabis clinics and patient base, will significantly streamline and sweeten Sunniva’s value proposition in due course.
 
Truth be told, the company’s Californian assets, alone, are worth far more than the company’s current market capitalization suggests. And this will soon become very apparent to investors as Sunniva’s cannabis product sales kick into high gear in early 2019.
 
In summary, the company has several areas of substantial value that the market does not yet appear to have priced-in. The extraction facility will soon be producing significant revenues and the Cathedral City greenhouse will also very soon be producing 50,000 kg/yr of premium flower.
 
At CannabisCapitalist.ca, we have made some back-of-the-envelope projections to demonstrate how much of a prized asset the extraction facility really is. Consider this:
Sunniva has a capacity to produce 500,000 vape pen cartridges per month (each containing 0.5 grams of pharmaceutical-grade cannabis oil).
 
Notably, this figure does not include other premium concentrate products lines to be sold. Nonetheless, each of these cartridges can be sold at wholesale prices for around US $15. This adds up to US $7 million in potential monthly revenues, along with significant profit margins.
 
Yet, imagine how much money can be made when Sunniva sells these products in its own outlets, where they can command retail prices of $30-50 each (depending on the quality) This is where Sunniva stands to really hit the ball out of the park with exceptionally high margins on high-volume sales as one of several key verticals in a truly optimized seed-to-sale business model.   
 
At CannabisCapitalist.ca, we are also very much focused on the big-picture potential of the prolific growing capacity of Sunniva’s Cathedral City Campus.
 
Just to give investors an idea of the potential of Phase 1 flower cultivation alone, if the company were to earn only USD $1/gram of flower – which is a highly conservative figure with current wholesale prices for premium dried flower being around $5 gram, – that would amount to US $50 million in prospective earnings.
 
Apply whatever multiple you deem appropriate on numbers like those and the upside potential is very obvious.  This is why CannabisCapitalist.ca believes that bottom-line financial metrics will be the biggest value driver for Sunniva in 2019. 
 
With the stock hovering near all-time lows, and with a powerful arsenal of value catalysts lined up, we continue to view Sunniva as a seriously undervalued investment opportunity. We are also confident of fast-escalating revenues in the coming quarters that will truly put Sunniva on the map. Hence, we fully expect the company’s compressed share price will experience a rapid re-rating in the investment community in 2019.


About the Authors: 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.
 
Jeff Khoshaba is a Staff Writer for CannabisCapitalist.ca staff writer and stock market analyst.

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Comments

sunrize
You pumped the bejeezus out of this last January. Now you fail to mention anything about the bays and license restrictions. Then contradict yourself in these two sentences "...first brand launches at the very beginning of next year" and "....will be integral to the successful launch of Sunniva-branded products, commencing in Q1 of next year...". "Very beginning" vs "Q1 of next year". Make up your mind.
(3)
December 4, 2018

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