GTEC Holdings Ltd. (TSXV:GTEC), one of the Canadian marijuana stocks, has a strong management team with a large equity stake in the Company
SmallCapPower | August 2, 2019: GTEC Holdings Ltd. (TSXV:GTEC) (OTCQB:GGTTF), one of the Canadian cannabis stocks, is a vertically-integrated cannabis company dedicated to cultivating premium-quality cannabis in purpose-built indoor facilities.
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Company Description
GTEC Holdings was founded in Kelowna, British Columbia in 2017. The Company is an indoor cultivator, distributor, and marketer of premium cannabis. GTEC Holdings holds a strict mandate of full vertical integration within the cannabis supply chain, giving them full control over the quality of their products. GTEC actively pursues sales and distribution opportunities across all of the major cannabis business channels, including recreational, medical, B2B, and export.
Investment Thesis
Figure 1: Premium Cannabis with Highly Visible Trichomes
Source: GTEC Holdings Corporate Presentation
Premium cannabis market is underappreciated. Findings based on the survey of cannabis users in Deloitte’s 2018 Cannabis Report, indicate that a majority of Canadian customers (55%) are willing to pay up to a 12% premium for high-quality cannabis. Deloitte expects to see the Canadian cannabis sector mirror the polarization of the retail sector, splitting into discount and premium segments. As consumers become more comfortable with the market’s legal cannabis offerings, habits and brand loyalties are expected to form. Given cannabis’ growing acceptance as a social activity, cannabis buying habits are set to gain acceptance with consumers who enjoy premium products. GTEC’s premium brands include: Blkmkt (high THC cannabis), Tenzo (balanced THC/CBD cannabis), GreenTec (medical cannabis), Cognoscente (connoisseur cannabis with high quality genetics), Treehugger (organic cannabis), and First Nations (cannabis growing partnership with Canadian First Nations groups).
Figure 2: GTEC Holdings Grow Room
Source: GTEC Holdings Corporate Presentation
GTEC’s full vertical-integration strategy works complementary with its product offering. GTEC’s key differentiating characteristic is the quality of its cannabis products. To ensure the highest-quality product, GTEC has instilled a mandate to be fully vertically integrated. This gives the Company full control over its supply chain. Within the cannabis industry, quality control is significant, especially for premium-quality product offerings. Being a newly-legalized product, cannabis is under more scrutiny than most other consumer products, and expectations are expected to increase as the market for recreational cannabis becomes more competitive. Vertical integration offers GTEC a competitive advantage over its competitors, most of which rely on horizontal distribution. As GTEC has more complete control over its operations and utilizes superior quality control, it differentiates the Company as a premium producer.
Strong management team with a track record of execution and a tight capital structure. GTEC boasts a management team with extensive experience in highly-regulated industries, such as: food & beverage, beer, wine, spirits, and pharmacy. Additionally, Norton Singhavon, Founder, Chairman, and CEO of GTEC Holdings, has vast experience in capital markets, mergers & acquisitions, consolidations, and start-ups in the North American legal cannabis sector. As an investor and advisor to many Canadian cannabis companies, he has been responsible for raising over $100M for the legal cannabis sector and has experience in many cannabis M&A transactions. Michael Blady, Co-Founder and Vice President, is an experienced venture capitalist and has been involved in the start-up of public companies since 2009. GTEC’s Chief Operating Officer, David Lynn, formerly served as the President & CEO of Sun-Rype Products, achieving record net sales and EBITDA during his tenure. Management owns a significant vested interest in the company, at ~30% of the common shares.
Recent News
On July 30, GTEC reported Q2/19 financial results – revenue came in at $108K, gross margins were 69% and the Company had a cash position of $2.2M. During the quarter, GTEC sold 18,569 grams of cannabis at an average price of $5.85/gram.
On July 29, GTEC Holding Ltd announced that its subsidiary, Alberta Craft Cannabis Inc (ACC), has received both a Standard Processing and a Sale for Medical Purposes licenses from Health Canada. This now gives GTEC the ability to sell into provincial recreational supply chains and make direct online sales to medical cannabis clients. These licenses are in addition to the Standard Cultivation licence ACC already possesses. This follows an announcement from July 8, 2019, when Grey Bruce Farms received its cultivation license.
On July 22, GTEC Holdings announced that it has entered into an agreement with Canopy Growth Corporation, where GTEC will acquire Canopy’s second cultivation site in Kelowna, BC. This site is expected to increase GTEC’s annual production capacity by 4,000kg.
Operational Overview
GTEC Holdings has many assets stretching across Canada in cultivation, extraction, and retail.
Figure 3: GTEC Holding’s Cultivation Assets
Source: GTEC Holdings Corporate Presentation
Figure 4: GTEC Holding’s Extraction Assets
Source: GTEC Holdings Corporate Presentation
Figure 5: GTEC Holding’s Retail Assets
Source: GTEC Holdings Corporate Presentation
Shares of GTEC Holdings ended Thursday’s trading session 1.4% lower at C$0.35. GTEC stock trades at a market cap of C$42.6 million.
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