Sunniva Inc. (CSE:SNN) shares trade at a slight discount to its US-based peers, but at a significant discount to its Canadian peers
SmallCapPower | July 27, 2018: Sunniva Inc. (CSE:SNN) is a vertically-integrated medical cannabis company headquartered in Vancouver, British Columbia. Established in 2014 by Dr. Anthony Holler and Leith Pederson, Sunniva is focused on the cultivation, production and distribution of a broad range of therapeutic solutions aimed at two of the largest medical cannabis markets in the world – Canada and California. The Company has acquired Vapor Connoisseur, one of the largest private label cannabis device providers in North America. Sunniva has also reported it has generated revenues and cash flow from the acquisitions of Natural Health Services and Vapor Connoisseur.
Sunniva’s expected cannabis production and state-of-the-art production facilities makes its stock intriguing to potential speculators. On the Canadian Securities Exchange (CSE), Sunniva trades at a market capitalization of $205.3 million and trades at 5.7x 2019 EV/EBITDA, a slight discount to its US-based peers, but at a significant discount to its Canadian peers, which trade at an average of 6.2x and 13.6x, respectively.
Investment Thesis
- Significant cannabis production facilities
- Strategic partnership with Barker Pacific Group
Significant cannabis production facilities
Sunniva’s two main production facilities are located in California and British Columbia, Canada. The Company’s site in California is located in Cathedral City and broke ground in November 2017. The site is being designed to be a state-of-the-art focused cGMP compliant greenhouse and manufacturing facility in two phases – Phase 1 (325,000 sq. ft.) and Phase 2 (164,000 sq. ft.).
This site is wholly-owned by Sunniva’s subsidiary CP Logistics LLC and has received temporary state licenses. Its main focus is on low cost, high quality, consistent and pesticide free cannabis-based medicines. The Company has planned 30% of the facility cultivation to be initially manufactured into higher-margin extracted products. The products will be branded under Sunniva, as well as white-labeled. The site is anticipated to be fully operational in Q3 2018.
The Company’s Canadian facility, operating under Sunniva Medical Inc. (SMI), is in final review stage under Health Canada’s Access Cannabis for Medical Purposes Regulations (ACMPR), after breaking ground in May 2018. Located in Okanagan Falls, the production site is a greenhouse area of 740,000 square feet and is expected to produce ~100,000 kilogram per year.
The Canadian facility is developed in such a way that it can supplement the Company’s flagship California campus. Sunniva has entered into a supply agreement with Canopy Growth Corporation in February 2018, under which Canopy Growth will purchase ~45% of SMI’s annual production capacity representing 45,000 kilogram of dried cannabis annually. The agreement is initially for two years and both companies will share revenues as product will be sold through Canopy Growth’s distribution network including its online marketplace, Tweed Main Street, and via provincial distribution channels.
Sunniva has selected locations and designs for the facilities in order to benefit from abundant sunlight for saving on electricity and push production costs to less than one dollar per gram. Additionally, the facilities will be highly automated so that considerable data/info from all business units will be collected to drive efficiencies thereby pursuing the goal of becoming low cost leader.
Strategic partnership with Barker Pacific Group
Sunniva is in a strategic partnership with Barker Pacific Group (BPG), an experienced real estate firm dealing with acquisition, development, and construction of commercial projects. BPG caters to the financing needs of the Company. In fact, BPG finances, builds and leases facilities to Sunniva and facilitates accelerated growth for capacity build out with minimal dilution.
Outlook and Valuation
In terms of valuation, Sunniva Inc. trades at a market capitalization of $205.3 million on the CSE and trades at 5.7x 2019 EV/EBITDA, a slight discount to its US-based peers, but at a significant discount to its Canadian peers, which trade at an average of 6.2x and 13.6x, respectively. On the back of its planned build out, anticipated cannabis production, and its strategic partnership with Barker Pacific Group, the Company’s stock looks appealing to speculators comfortable with elevated risk levels.
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
To read our full disclosure, please click on the button below:
