Cannex Capital Holdings (CSE:CNNX) Has Some of the Industry’s Highest Yields: Ubika Research

    Equity Research Cannabis | Canadian Small Cap August 10, 2018
    Patrick Smith | Analyst | Ubika Research | 1 (647) 444-5506
    Richard Waxman | Associate | Ubika Research | 1 (647) 770-2815

    Cannex Capital Holdings Inc.’s (CSE:CNNX) pending acquisition of Jetty Extracts provides a clear path for California expansion

    Market Data (CSE:CNNX)

    Price (August 10, 2018) $0.88

    52 Week Range $0.36 – $1.93

    Market Cap (M) $161.2

    Current Shares Outstanding (basic, M) 183.7

    Current Shares Outstanding (fully diluted, M)253.4

    Free Float79%

    Average Daily Volume (30 Days)136K

    Headquarters Vancouver, BC., Canada


    Top Shareholders

    Management & Insiders21%


    Anthony DuttonCEO & Director

    Leo GontmahkerCOO, President & Director

    Roman TkachenkoChairman

    Jerry DerevyannyDirector

    Simon AndersonCFA

    Tom PetersDirector

    Gregory MarshallDirector

    Dmitriy GoykhmanDirector

    All figures in CAD unless otherwise stated. Source: Company Reports, Thomson Reuters

    Price Performance

    Cannex/BrightLeaf Production Growth

    Source: Cannex Investor Presentation

    Cannex Group Holdings Inc. (CSE:CNNX, OTCQB:CNXXF)

    Company Description

    Cannex Group Holdings Inc. (Cannex) is a Canada-based company that provides a range of services including real estate, management, financial and branding to licensed cannabis business operators, primarily in the US. Cannex is focused on premium indoor cultivation, extraction, value-add manufacturing and branding of edible and derivative products as well as distribution and retail operations. The Company is building a portfolio of scalable, cashgenerating cannabis assets that produce consistent and reliable branded products that can be cross licenced to Cannex portfolio companies or independent operators.

    The Company’s subsidiary, BrightLeaf Development LLC, owns the assets of the largest producer/processor in Washington State, Northwest Cannabis Solutions. Cannex is also in the process of acquiring Jetty Extracts, one of the top 10 largest producers/processors in California and one of the most trusted cannabis extract brands in the state. Jetty products are distributed in more than 50% of the currently licensed retail stores in California.

    Investment Highlights

    • Cannex has some of the highest yields and lowest cost structures in the industry. In 2017, Northwest Cannabis Solutions produced ~8,000 kg of cannabis with yields of 331 grams/sq. ft., significantly exceeding the industry indoor average of 160 grams. The operating facility is located in Tumwater, Washington, and includes 60,000 ft2 of cultivation space with 30,000 ft2 of flowering canopy and 40,000 ft2 of additional space for extraction/processing, manufacturing/kitchens, packaging, distribution and administration.
    • The Company is increasing its cultivation space to support continued growth in the face of overwhelming demand. In February 2018, Cannex’s second indoor cannabis production facility, located in Elma, Washington, became operational. Elma includes a 60,000 ft2 building with 30,000 ft2 of flowering canopy. Initial harvestsfrom 19 flowering rooms during Feb/March produced 2,400 kg of dried flower, or annualized yields of more than 500 grams/sq. ft. This second facility more than doubled Cannex’s total capacity to ~19,000 kg/year.
    • There is a wealth of demand for the Company’s products. Cannex’s edible and derivative products are strong sellers, with demand exceeding the Company’s cultivation capacity. To meet this demand, Cannex purchases external dried flower and processes it at the Tumwater facility. Through multiple extraction and processing steps, Cannex creates a molecular distillate to make edibles, oils, waxes and other derivative products. It has become the largest cannabis purchaser in Washington State to focus on branding and manufacturing rather than commoditized cannabis.
    • Jetty Extracts provides a clear path for California expansion. Anticipated to be the largest cannabis market in the US, California has projected 2021 revenues of US$6.8 billion. Unlike Washington, where vertical integration is prohibited, Jetty has a distribution license (distributed to ~600 outlets in 2017) in California and the potential to expand further downstream into retail operations. The acquisition is scheduled to close by the end of Q3 2018.

    Financial Analysis

    Cannex appears to be on track for a strong second half in 2018 and is well positioned to execute on its plan to expand operations beyond California and Washington by the year’s end.

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