Aleafia Health Inc. (TSXV:ALEF) is the first Canadian LP to take advantage of Health Canada’s new outdoor grow rules
Vasudha Sharma | November 15, 2018 | SmallCapPower: Aleafia Health Inc. (TSXV:ALEF), based in Toronto, is a licensed cannabis producer that owns Canada’s largest network of medical cannabis clinics. The Company describes itself as a seed to patient licensed producer. It has vertically-integrated capabilities that enable it to cultivate, process, conduct independent medical research and market through its clinics with a physician-led approach.
The Aleafia team is led by former government and law enforcement officials, expert growers, and successful entrepreneurs. With 22 clinics coast to coast in Canada, Aleafia has built a customer base of 50,000 patients.
With its operational strengths and cannabis expertise, Aleafia is now looking to create a first for the cannabis industry. The Company is set to grow the medicinal plant outdoors. Until June 2018, outdoor cannabis cultivation was not legally permitted in Canada. Only black-market operators were illegally growing cannabis outdoors. But after Ottawa green lighted outdoor cultivation this summer, Aleafia moved swiftly to be the first to take advantage of growing cannabis outdoors on a commercial scale.
Canada’s First Outdoor Cannabis Grow at Aleafia’s Port Perry Facility?
Cultivating cannabis outdoors means a significant cut in operating expenses, lower capital investments, and consequently a reduced cost per gram output. Aleafia’s Port Perry property in south-central Ontario gives the Company the opportunity to leverage economies of scale that outdoor growing provides.
The Port Perry site is a 7,000 sq ft. fully operational cultivation facility. But Aleafia’s overall land parcel here is a very large 76-acres. The Company has drawn up a fully-funded plan to expand this 7,000 sq ft site to 1,300,000 sq ft—the vast majority of this being the outdoor portion. Most importantly, it has secured the local regulatory nod to expand the Port Perry project. It estimates the expanded facility will have a capacity to grow 60,000 kg of cannabis. Aleafia now awaits Health Canada’s approval. The Company is targeting its first harvest in the summer of 2019.
The Company’s goal appears to be to focus on growing the large, outdoor strains, for a fraction of the cost of other licensed cannabis producers, and sell it to consumers for a market-share-building value price. It will be very difficult for competitors who spent $100 – $200 per square foot on modern greenhouses to compete on price.
What does Outdoor Cultivation mean for Aleafia’s Business?
Secure outdoor cultivation makes business sense to Aleafia. They claim they can produce cannabis at the lowest cost per gram rates in the industry. Also, conventional greenhouse cultivation is prone to significant crop loss. Aleafia says outdoor grow can tackle that challenge as well.
With outdoor cultivation, the production yields per plant are higher, and the infrastructure expenses are much lower. Aleafia also believes this is a profitable strategy for CBD oils, because you can harvest and process your product and get it to the market faster. This is significant given the current supply shortage in the marijuana marketplace.
Aleafia in Execution Mode with Fully-Automated Niagara Facility
Aleafia demonstrated its emphasis on building shareholder value from the acquisition of a fully-automated greenhouse facility in the Niagara region in 2018. The Company describes this property as one of the most advanced cannabis cultivation facilities in Canada. Aleafia says acquiring the Niagara cultivation site and then retrofitting it has been a deliberate choice, because it is a far smaller investment and shorter time frame than building a greenhouse from scratch.
The Niagara facility is a 160,000 sq. ft, fully-built site that uses a moving container bench system, precise irrigation techniques, and smart LED lighting to generate the highest yields and the best-quality medicinal cannabis. This site is expected to come online before the end of 2018. An on-site extraction lab, and a research and development facility at the Niagara property will help Aleafia produce CBD oil and capsules.
With the Niagara site, Aleafia estimates it can clock an annual growing capacity of 38,000 kg of cannabis flower in 2019. Once the Port Perry expansion is complete, it can bump up its annual production capacity to 98,000 kg of cannabis in 2019.
Entering Australia, Eyeing Asia for a Global Footprint
Fully funded and in a cash surplus, Aleafia is now aiming for a global presence. It has signed a non-binding agreement to buy a 10% stake in Australian cannabis LP CannaPacific. The cannabis market Down Under is ripe for growth and a partnership with CannaPacific gives Aleafia a shortcut into Asia through the various trade treaties that Australia has with key markets in the region. As part of this deal, Aleafia will share its expertise in cultivation, processing, distribution and clinic operations with CannaPacific.
Aleafia as a cannabis business and an investment stands out. Management has a hawkish eye on margins and has carefully crafted an efficient business model. Unlike many cannabis players, the Company is actually producing significant revenue. But what differentiates them in a meaningful way is their commitment to improving lives with medical cannabis. Aleafia likes to describe their approach to growing and selling cannabis as a patient-first, physician-led, and research-driven model. With 50,000 authorized patients and growing, Aleafia has a huge opportunity on its books to monetize what it claims is the largest medical cannabis data set in the world. This is a cannabis growth story that is worth watching.
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