Once Golden Leaf Holdings Ltd. (CSE:GLH) is able to realize synergies and consolidate its acquisitions, it has the ability to create a strong market position
SmallCapPower | August 20, 2018: Golden Leaf Holdings Ltd. (CSE:GLH) is one of the largest cannabis oil and solution providers in North America and is a leading cannabis company in Oregon. With a product portfolio built around recognized brands, Golden Leaf Holdings strives to provide cannabis users with superior value and experience. Golden Leaf Holdings has expertise in extracting, refining, marketing, and selling cannabis oil. GLH’s primary growth strategy is through strategic acquisitions and is well positioned to expand into other states within the U.S. that have legalized either medicinal or recreational cannabis use. With a market cap of $131 million, the Company is trading at $0.23 per share. Golden Leaf Holdings currently trades at 7.3x and 3.8x 2018 and 2019 EV/EBITDA, a discount to U.S.-based peers, which trade at an average of 7.6x and 5.9x.
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Currently, the Company owns two licenses for cannabis cultivation and a combined indoor and outdoor production capacity of 10,425 sq. ft. Golden Leaf Holdings is driven by concentrated and infused marijuana product manufacturing, with two licenses in Oregon and one in Nevada.
Low-Cost Production Facilities
Source: Company Website
Investment Thesis
- Consolidation of high value brands under one roof
- Proprietary cultivation methods
- Expand Chalice Farms retail presence leveraging strategic partnership with BlackShire
- New product launch – Fruit Chews
Consolidation of high value brands under one roof – First Mover Advantage
Golden Leaf Holdings offers a wide product selection, ranging from flower, oils & dabs, edibles and E-joints with a focus on Western USA and Canada. The Company focuses on developing the highest quality oils with the lowest cost production through its competitive advantage, economies of scale and intellectual property. Golden Leaf Holdings invests consistently in Research and Development to produce high-quality products at the lowest cost of manufacturing. Consolidation of acquired brands with similar infrastructures helps Golden Leaf Holdings to scale efficiently.
Growing inorganically through strategic acquisitions, Golden Leaf Holdings has a strong brand presence and a rich product portfolio. GLH has a differentiated product portfolio with multiple brands like Golden, Proper, Chalice farms, Private stash, Liberty reach, Jackpot seaweed and Juju Joints.
Proprietary Cultivation Methods
With the demand for cannabis oil rising due to the health benefits and concerns arising over smoking, Golden Leaf Holdings is focusing on producing oils using proprietary production methods. By using proprietary extraction methods, it is able to produce cannabis oils, hash and edibles while controlling the flavors and potency of these products. GLH uses two separate extraction methods for extracting cannabis oil; carbon dioxide extraction (CO2) and hydrocarbon.
CO2 extraction allows Golden Leaf Holdings to focus on the extraction process so that desirable cannabinoids can be targeted, leaving behind non-beneficial compounds such as chlorophyll, lipids, waxes and fats from the plant. It operates five 20-liter Co2 extraction machines, which have the capacity to produce approximately 450 grams of CO2-based cannabis oil per day. With five machines in operation production output capacity is approximately 2,250 grams of cannabis oil per day.
Hydrocarbon extraction uses non-polar hydrocarbon as a solvent. Hydrocarbon is especially well-suited for stripping dried cannabis material of its cannabinoids, terpenes, and other essential oils.
The hydrocarbon process, unlike the CO2 process, generally requires higher-quality cannabis material in order to have a higher-quality finished product. It operates one hydrocarbon extraction machine for the processing and production of hydrocarbon-extracted cannabis oil. The machines yield approximately 3,200 grams of hydrocarbon-extracted cannabis oil per day.
The Company’s CO2 oil products are sold under the brand names Golden and Private Stash through a number of delivery systems: e-pens, cartridges and dabs. The Company’s hydrocarbon products are sold under the name Proper, which are sold in one-gram cartridges, or in one-gram receptacles as crumble and shatter. Hydrocarbon is also sold in bulk in slab format.
Expand Chalice Farms retail presence leveraging strategic partnership with BlackShire
Golden Leaf Holdings signed a LOI to partner with BlackShire Capital Corp. to launch the “Chalice Farms” franchise program in March. Chalice Farms has developed a branded portfolio of cannabis products that will generate a retail opportunity to expand internationally with an initial focus on Canada and the U.S. Chalice brand dispensaries are both Company-owned and planned for franchising. Golden Leaf believes that the establishment of the jointly-owned management company will strengthen its retail brand-focused model, promote a premium customer experience and build sustainable, long-term shareholder value.
Chalice Farms Brand Dispensary
Source: Company Presentation
Upon mutual agreement, BlackShire invested a $10 million initial contribution for the potential Canadian operations and $15 million for the potential U.S. operations. In return, BlackShire would get 80% of the equity ownership of the Management Company, with the remaining 20% interest belonging to Golden Leaf Holdings. Up until now, the Company owns and operates a network of seven retail dispensaries, six of which are under the flagship franchise brand “Chalice Farms.”
New Product Launch – Fruit Chews
Golden Leaf Holdings has launched a new line of cannabis-infused fruit chews in Oregon in March. Produced under the brand name “Golden,” the edible fruit chews feature a combination of premium cannabis oil, real fruit and restorative ingredients, with flavors including tangerine, tropical fruit, kiwi strawberry and acai berry. The new fruit chews edibles are expected to be vegan-friendly, gluten-free and soy-free, and will be distributed by the Company’s Oregon wholesale outlets as well as sold in Chalice Farms dispensaries.
Fruit Chews with Four Flavor Choices
Source: Company Presentation
In addition, the Company launched this new product line in Nevada through its wholly-owned subsidiary, Greenpoint Nevada, in July 2018. The Nevada cannabis market has grown rapidly since the legalization of recreational marijuana in July 2017. Golden Tinctures launched by Greenpoint included a variety of four flavors: Orange, Cherry, Mint and Strawberry. Greenpoint also launched Golden Private Stash distillate vape cartridges and its Golden CBD product lines, which utilize its outstanding cold ethanol extraction processes and proprietary blends of strain-specific terpenes.
Outlook
We expect that once Golden Leaf Holdings is able to realize synergies and consolidate its acquisitions, the Company has the ability to create a strong market position. With a market cap of $131 million, the Company is trading at $0.23 per share. Golden Leaf Holdings currently trades at 7.3x and 3.8x 2018 and 2019 EV/EBITDA, a discount to U.S.-based peers, which trade at an average of 7.6x and 5.9x.
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