See our overview of EXMceuticals Inc. (CSE:EXM) and how its international assets have placed the Company in an advantageous position
SmallCapPower | August 15, 2019: EXMceuticals Inc. (CSE:EXM) is a medicinal cannabis company with plans to become the largest volume, lowest-cost producer of cannabidiol (CBD) in the world. The Company is currently sourcing cannabis crude oil from Africa, which is shipped to Portugal for further refinement and distribution throughout the EU. For more information on the Company visit its corporate website.
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Investment Highlights
EXM’s decision to conduct business in Africa has given them a cost advantage in operations and cultivation. EXM can realize reduced operating costs due to lower labour, governmental regulatory, and construction costs that are available in Africa. Additionally, Africa provides 12-hour days, ideal temperature and an abundance of rainwater and soil that helps improve the quality of cannabis grown. The Company is not planning on relying on growing in one area of Africa to create a diversified supply chain of product. This will help mitigate the damage from natural disasters and potential political unrest in the continent.
Figure 1: Overview of EXM’s Business Strategy
Source: (Investor Presentation, 2019)
The Company’s presence in Portugal will provide it with a base for distribution into Europe. EXM’s presence in Europe allows it to benefit from the EU Single Market and from various trade agreements with other European countries (Your Europe, 2019). This has the potential to provide a strategic advantage in gaining market share of the European cannabis market, which is expected to be worth €123B by 2028 (Prohibition Partners, 2019).
EXM has collaboration agreements, which has allowed them to create a multi-university decentralized research team in Portugal. These research projects will focus on: 1) maximizing yields with natural solutions for pest control to maintain organic certification; 2) extraction processes; 3) applications of cannabinoid ingredients in pharmaceutical, nutraceutical and therapeutical products and clinical trials in this research. While it is anticipated that initial revenues will very much come from wholesaling cannabinoids, EXM intends to move rapidly up the value chain and endeavour to create customer delivery mechanisms and CBD brands.
EXM has for 18 months had an MOU with a private company called GFR Pharma. GFR is currently Canada’s largest white-label nutraceutical company, operating from a world-class facility outside Vancouver. The MOU is currently being turned into a joint venture, whereby EXM will supply cannabinoids at scale, and GFR will supply the facilities know-how, manufacturing expertise and distribution.
Company Overview
EXMceuticals focuses on practicing the sustainable cultivation of cannabis and hemp in order to provide high-grade ingredients for the pharmaceutical, therapeutical, nutraceutical and cosmetic industries. The Company plans to sell the produced ingredients in international markets. Currently, the Company is commencing cultivation at three facilities:
- Through EXM’s subsidiary, Prime Ranchers Limited, EXM can cultivate and process cannabis in Uganda. EXMceuticals license is for 4,940 acres of agricultural land. The Company plans to initially plant 247 acres, with the initial seedlings already planted. As well, the Company has 21,500 sq.ft of lab, extraction and material handling facilities available. Currently, the processing facility has been installed and is expected to start producing and exporting cannabis ingredients.
- Additionally, through its subsidiary, the Company has a license in the Kuba Kingdom, Democratic Republic of Congo for the cultivation of cannabis and hemp and processing and export of cannabinoid ingredients. At its plantation it currently has 400 acres of cleared land, with rights to expand this to more than 10,000 acres if needed.
- In May 2019, EXM agreed to acquire a sizeable agro-processing business in the Republic of Malawi. This consists of 682 acres of fully drop-irrigated farmland, a 10-acre greenhouse nursery that is capable of housing 700,000 plants, a modern 107,640 sq. ft processing facility, and 4,200 acres of land for further farming expansion. This facility is fully staffed. The transaction is expected to close by September 1st. A cannabis cultivation license is expected in September 2019.
EXM applied for a license in Portugal (July 2019) to get permission to import crude cannabis oil from Africa and to establish a laboratory for research, a nursery and a center for processing and distribution. As well, EXM has a contract with GFR Pharma Inc, which is a full-service contract manufacturer (CMO), packager and formulation expert for tablet, capsule, power and liquid health products located in Vancouver, to establish a joint venture (JV) company. GFR is FDA regulated. The JV will apply for a license from Health Canada to import and distribute cannabinoid inputs and produce white label retail products. New facilities will need to be built (likely in the USA & Canada) to handle this CBD nutraceutical production.
EXM has also submitted applications and started negotiations with local governments and partners in Ethiopia, Zambia and Burundi, with plans to obtain licenses to permit cultivation of cannabis and hemp as well as processing, transformation and export of ingredients. In Ethiopia, the Company is in the final stage of negotiation with the government to get approval for a 10,000-acre, agro-industrial park, which encompasses a free-trade zone.
Overview of Financial Performance
As of May 30, 2019, EXM has had no income-generating assets and is not able to finance daily activities through operations. For the nine months ended March 31, 2019, the Company’s cash inflow from financing activities was $3.6M, which is up when compared to the $997,552 from the same period in 2018. Loss from activities during the quarter was $5.7M, which is up from 2018’s quarter loss of $589,861.The increased operating expenses were from the Company’s engagement in corporate and foreign operations, including its subsidiary in the Democratic Republic of Congo. Additionally, EXM had $4.4M of transaction costs related to the RTO transaction. The Company’s financial projections for FY2019 is to have a total production of dried cannabis per annum of 161,000 kg, 23,178,652 g of total production of extracted ingredients per annum and revenue of US$ 28.3M and operational costs of US$15.1M.
African Cannabis Market Overview
It is predicted that Africa’s legal cannabis market could be worth an estimated US$7.1B. Specifically, South Africa is estimated to be the third-largest cannabis producer by The World Health Organization with about 2.5M kg of cannabis produced a year. There is currently no limit to the number of cannabis production permits that will be issued, but quotas will be restricted to those set out by the International Narcotics Drug Control Board. Prohibition Partners estimates Africa has 900,000 cannabis farmers (Prohibition Partners, 2019).
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