Investor Guide to Canadian Cannabis Extraction Stocks

Today we have provided an overview of the advantages and room for improvement to help compare five Canadian cannabis extraction stocks

SmallCapPower | July 30, 2019: With the impending legalization of cannabis edibles in Canada, it is important to take a look at what that will mean for Canadian cannabis companies. Since the legalization of recreational cannabis in Canada on October 7, 2018, six major cannabis companies: 1) Canopy Growth, 2) Aurora Cannabis, 3) Cronos Group, 4) Aphria, 5) HEXO and, 6) Organigram had average returns of -20.3%. For reference six of Canada’s intermediate cannabis companies: 1) The Green Organic Dutchman, 2) Village Farms International, 3) The Flowr Corporation, 4) Auxly Cannabis, 5) Aleafia Health and, 6) The Supreme Cannabis Company had an average return of -13.8%. In comparison, during the same time period, the five Canadian cannabis extraction stocks included on our list have generated a return of 45.1%, outperforming the major cannabis companies by 65.4%. The extraction industry is expected to exhibit further growth with the pending legalization of edibles, extracts and topicals on October 17, 2019.

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Figure 1: Overview of the Five Extraction Companies’ Last Quarter

Source: (SEDAR)

Neptune Wellness Solutions Inc. (TSX:NEPT)

Neptune is a licensed extractor based in Quebec that has a capacity of 200,000 kilos/year. From its 50,000 sq.ft facility based in Sherbrooke, Quebec, Neptune’s extraction facility has a large industrial scale ethanol extractor, which has the ability to process up to 6,000 tonnes of biomass. However, Neptune has not commissioned this large extractor but has chosen to work on an initial scale project of 200 tonnes (200,000 kilos). The Company currently uses two business models, which include: 1) wholesale: buying dry cannabis and then selling primary (crude) or secondary (distillate) cannabis oil; 2) white labelling: providing custom production services, which is expected to include tinctures, spray, topical and vape pen services after the legalization of edibles. Visit Neptune’s corporate website for more information.

Figure 2: Neptune’s Extraction Facility

Source: (Investor Presentation, 2019)

Radient Technologies Inc. (TSXV:RTI)

Radient is a licensed extractor based in Edmonton, with operations designed to process 5,000kg per day of biomass. Today, Radient processes 1,000-2,500 kg a day depending on the biomass. Radient Technologies offers industrial-scale manufacturing solutions for natural ingredients and products. Originally, Radient provided its services for companies in industries such as foods & beverages, nutraceuticals, pharmaceuticals, cosmetics and personal care. However, in compliance with its application for its Standard Processing License, production of cannabis products could not occur in the same facility. As a result, Radient’s main focus is now Cannabis and Nicotine Reduction Activities. The Nicotine reduction activities include using its proprietary Map™ technology to reduce the amount of nicotine in tobacco used for cigarettes and other tobacco products. The Company received its Standard Processing license from Health Canada in February 2019. Visit the Company’s corporate website for more information.

Figure 3: Inside Radient’s Extraction FacilitySource: (Radient Investor Resources, 2019)

MediPharm Labs Corp. (TSXV:LABS)

MediPharm Labs is a licensed extraction company based in Barrie, Ontario, with a 70,000 sq.ft facility that has 150,000 kg of capacity. The Company is a specialized, research-driven cannabis extraction company that focuses on downstream extraction methodologies: distillation, cannabinoid isolation and purification. The Company generates revenue through two main activities: 1) wholesale activities; 2) tolling services, which is when companies are hired to process cannabis and prepare it to be used in cannabis products and; 3) white-label manufacturing services. MediPharm expects to expand this capacity to 250,000 kg by Q2/19. The Company also holds an 80% stake in MediPharm Labs Australia Pty, Ltd, a subsidiary based in Victoria, Australia, with a 10,000 sq.ft facility under construction with 75,000 kg capacity expected by H2/19. Visit MediPharm’s corporate website for more information.

Figure 4: Outline of MediPharm’s Business Models

Source: (Investor Presentation, 2019)

Valens GroWorks Corp. (TSXV:VGW)

Valens GroWorks is a licensed extractor based in B.C. with a recently-increased extraction capacity of 425,000 kg of dried cannabis and hemp biomass. The Company focuses on being the partner of choice for Canadian and international cannabis brands that need proprietary services, such as CO2, ethanol, hydrocarbon, solvent-less and terpene extraction, analytical testing, formulation and white-label product development. Currently, the Company has 25,000 sq.ft for extraction, post processing and analytical testing facility. In February, the Company’s facility expanded to over 50,000 sq.ft from the acquisition and expansion of its facilities in Kelowna, BC. As the properties are so close in proximity, the facilities are considered the same property and Valens GroWorks does not need to apply for another license. Valens has also begun construction on its recently-acquired adjoining facility in Kelowna, British Columbia. The expansion is expected to be completed in H1 2020 and increase Valens extraction capacity to over 1Mkg per annum.  See Valens corporate website for more information.

Figure 5: How Valens Generates High Margins

Source: (Investor Presentation, 2019)

Nextleaf Solutions Ltd. (CSE:OILS)

Nextleaf is an extraction technology company based in British Columbia that has developed a portfolio of issued and pending patents to protect its industrial-scale process of generating purified cannabinoid distillate. Recently, the Company completed the initial build out of its ~6,500 sq. ft facility in B.C.  Based on one shift per day, the Company predicts that its Phase One facility should have an annual capacity of 100,000kg of dried cannabis biomass. However, Nextleaf has designed the equipment of its ethanol-based system to eventually run 24 hours a day, seven days a week. As a result, the facility has the potential to increase output by more than double. Currently, the Company has three issued and 24 pending patents. On July 24, 2019, Nextleaf announced that it has implemented a shareholder rights plan, which will help protect shareholders during a hostile takeover bid. This plan will allow shareholders as of July 23, 2019, to have no consideration for each common share. As well, it will give shareholders the ability to double their shareholdings at half the market price if an attempt to acquire 20% or more of Nextleaf’s common stock takes place through a hostile takeover bid. See the Company’s corporate website for more information.

Figure 6: Nextleaf Solutions Extraction Process

Source: (Investor Presentation, 2019)

Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.

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