By mid-2020, Delta 9 Cannabis Inc. (TSXV:NINE) expects to increase its production capacity to 17,500 kg of cannabis per year
SmallCapPower | May 30, 2018: Delta 9 Cannabis Inc. (TSXV:NINE) is a Canada-based licensed producer of medical and recreational cannabis. The Company operates a production facility of 80,000 square feet in Winnipeg, Manitoba.
Self-Designed Proprietary Grow Pods
Source: Company Deck
Delta 9 Cannabis Inc.’s primary cannabis cultivation is based on its unique, self-designed production unit called “Grow Pods,” which the Company describes as an innovative biotechnology, able to increase quality, reduce the risk of contamination or crop loss, and maintain low-cost production. Currently, Delta 9 Cannabis owns a total of 21 completed production units, and 600 proprietary grow pods that are expected to be constructed by mid-2020, increasing the production capacity to 17,500 Kg of cannabis per year, estimated to generate revenue of $130 million.
Delta 9’s Grow Pots – Phased Expansion Plan
Source: Company Deck
Licensing
Delta 9 Cannabis is one of the four fully-licensed cannabis producers under ACMPR in the Province of Manitoba. Holding 35% of the market share in Manitoba, Delta 9 Cannabis is able to sell its products through its own retail stores across the province unlike majority of LPs without a full license. The Company is also expanding outside the province. On April 19, 2018, Delta 9 Cannabis entered into a limited partnership with Westleaf Cannabis Inc. for the joint development of a large-scale marijuana production facility in south Alberta. Both companies will own a 50% interest in the partnership by contributing $3M initial investments. Internationally, Delta 9 Cannabis has entered into an export agreement with Global Group Kalapa and CanPharma to export its product to the German medical cannabis market.
Low-Cost Producer
The Company’s strategic location in Manitoba creates a competitive advantage of an inexpensive labour force combined with low power costs. The Company currently utilizes energy costs of $0.05 per kwh, less than half of the costs of marijuana producers in other provinces, according to the Company. The production cost is estimated to be $1.11 per gram, as Delta 9 Cannabis achieves its full-scale production by mid-2020.
Canada’s Low Cost, High-Quality Licensed Producer 
Source: Company Investor Update
Financial Statements
As of the last reported financial quarter (Q4 – Dec. 31/2017), Delta 9 had cash of $23.5M and no long-term liabilities. Delta 9 Cannabis and its subsidiaries raised an aggregate total of $32.5M in gross financing proceeds in forms of both debentures and common shares.
Revenues (90% sales of dried) were $944K for the fiscal year of 2017, almost doubling the sales of $498K in 2016. This is primarily the result of doubling the registered patients number to 2,487 from 1,218 year over year.
Valuation
The Company’s stock has steadily declined 47.7% YTD following its IPO in October 2017, underperforming the HMMJ index, which was down 13.8% over the same period. Delta 9 Cannabis has no analyst coverage.
Disclosure: Neither the author nor his family own shares in the company mentioned above.
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