Supreme Pharmaceuticals Inc. (TSXV: FIRE) employs a one-of-a-kind B2B wholesale model in Canada
SmallCapPower | October 6, 2017: Supreme Pharmaceuticals Inc. (TSXV: FIRE), through its wholly-owned subsidiary 7ACRES, supplies high-end cannabis to legal retailers in Canada. Last month (September 2017), Supreme Pharmaceuticals entered into two key sales agreements with Aurora Cannabis Inc. (TSX: ACB) and Emerald Health, following which the stock has gained more than 20%. Although its stock price may cool off in the near term, any meaningful revenues from the two agreements in the forthcoming quarters and the signing of new B2B customers should drive the stock higher over the medium to long term.
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Investment Thesis
- A producer of high-end cannabis focused on unique wholesale strategy
- Recent deals with Aurora Cannabis and Emerald Health could generate meaningful revenues over the coming quarters
- Large and growing market opportunity
Unique B2B sales strategy
Unlike other licensed cannabis producers focused on end consumers, Supreme Pharmaceuticals employs a one-of-a-kind wholesale model in Canada,focused on the business-to-business (B2B) industry. Through its greenhouse facility 7 ACRES, a ACMPR licensed cannabis producer with capacity to produce 50 million grams at full capacity, Supreme Pharmaceuticals is well positioned to supply bulk dried cannabis to legal retailers, such as ACMPR licensees. Operating inside a 342,000 sq. ft. Hybrid Greenhouse facility located in Kincardine, Ontario, 7 ACRES is the largest facility of its kind to grow with advanced HVAC and C02 enrichment using the full-spectrum sun, rather than the limited-spectrum lamps used by many ‘hybrid’ growers.
Recent agreements with Aurora Cannabis and Emerald Health could generate meaningful revenues over coming quarters
On September 7, 2017, Supreme Pharmaceuticals, through its subsidiary 7 ACRES,completed its first sale of dried cannabis to Aurora Cannabis, one of Canada’s leading licensed producers. Cannabis procured from 7ACRES will be sold by Aurora to its medical cannabis patients, with a producer’s mark specifying the cannabis as “SunGrown by 7ACRES.”With a patient population of over 19,000 registered patients, Aurora Cannabis would be the preferred retail partner for Supreme.
Within two weeks following the Aurora deal, Supreme Pharmaceuticals announced another supply deal for sale of dried cannabis to Emerald Health Botanicals Inc., a wholly-owned subsidiary of Emerald Health Therapeutics, Inc. (TSXV:EMH). Similar to the Aurora deal, all cannabis procured from 7ACRES by Emerald will be re-sold with a producer’s mark specifying the cannabis as “SunGrown by 7ACRES.” Emerald sources low-cost cannabis from its own facilities through a JV with Pure Sunfarms and the current Supreme Pharmaceuticals deal supplements Emerald’s supply for higher-end dried flower segment, both for current patients and for the anticipated growth in domestic and international demand for medical and adult-use cannabis.
Supreme Pharmaceuticals is yet to generate revenues, and these two initial deals could generate meaningful revenues and also highlight the Company’s prospects as more licensed producers become sellers of the Company’s high-quality cannabis.
Large market opportunity
A rapidly-growing cannabis market in North America is creating large opportunities for a variety of businesses involved in the industry,including producers, retailers, R&D and testing companies. As per a recent report by ArcView Market Research, legal marijuana industry in North America is projected to reach $22 billion by 2021 from less than $7.0 billion in 2016. A tiny portion of this big market opportunity could immensely benefit small producers such as Supreme Pharmaceuticals.
Outlook and Valuation
Supreme Pharmaceuticals is yet to generate revenues and currently trades at a modest market capitalization of $280 million. The recent deals with Aurora Cannabis and Emerald highlight the Company’s potential for bagging many more clients, which should generate meaningful revenues over the next several quarters. Notwithstanding the recent run and a possible near-term correction, long-term investors could dabble at current levels and subsequently add to their positions on the reporting of meaningful revenues by Supreme Pharmaceuticals in the coming quarters.
Disclosure: Neither the author nor any of the principals at SmallCapPower, or their family members, own shares in any of the companies mentioned above.
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