ABcann Global Makes a Tempting Takeover Target

ABcann Global Corporation (TSXV:ABCN) currently has about $130 million in cash and holds a niche in cultivation technologies that deliver higher yields and consistent quality

SmallCapPower | May 16, 2018: ABcann Global Corporation (TSXV:ABCN) recently provided a business update on operational and financial performance as well as a detailed note on a new growth strategy formulated by the new management.

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For the year ended December 31, 2017, ABcann Global reported a 40% YoY jump in net sales to $0.9 million but its operating loss increased due to higher operating expenses of $27.5 million as a result of substantial one-time costs related to taking ABcann public and internal restructuring matters. Management noted that the impact of these costs will be lower in Q1 2018. The cash balance stood at $70.8 million at December 31, 2017 and currently stands at $130 million, which includes a $75 million financing completed in February 2018. ABcann Global believes this strong financial position helps it to execute its renewed growth strategy discussed below.

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ABcann’s renewed growth strategy formulated by the new management in Q1 2018 focuses on several areas including Production Capacity and Capability, Go-to-Market Strategy, International Expansion, R&D Initiatives, and Organizational Effectiveness.

Annual production for 2018 is expected to reach 2,300 kgs (800 kgs of indoor grown dry flower and 1,500 kgs of greenhouse cannabis), which will be achieved by the expansion of the Vanluven facility in Q3 2018. For 2019, ABcann Global expects production to reach 15,500 kgs (1500 kgs indoor and 14,000 kgs greenhouse), driven by the completion of Phase I and Phase II of its 150,000 sq ft Kimmett Facility. Phase 3 of the Kimmett facility, which includes the Cannabis Wheaton expansion area, will be a hybrid production facility with 17,000 kilograms of capacity and will commence production in late 2019. Upon completion of Kimmett facility, ABcann’s total capacity is expected to reach 32,500 kgs annually.

ABcann’s Go-to-Market Strategy will encompass rebranding, including a new company name, a new medical brand, and two new adult-use brands; expansion of Harvest Medicine clinics (second clinic in Edmonton in Q3 2018); and launch of a telemedicine platform by Harvest Medicine in Q3 2018.

Key updates related to its international expansion strategy include commencement of Australia sales and filing for approval in Germany. ABcann Global plans to ship its first product to Australia this month to be used in a study to explore the use of cannabinoids in the management of chronic pain. For European sales, ABcann Global plans to submit joint applications to the German Narcotic Agency (BfArM) and the State of Brandenburg and expects approval in late 2018.

In terms of R&D Initiatives, ABcann Global has had a partnership with the University of Guelph’s Controlled Environment Systems Research Facility (CESRF) since 2015. ABcann Global is also working with an Ontario college for the implementation of optimized extraction methods at the Company’s Napanee facilities and the development of novel differentiated product formulations.

Over the past two months, ABcann Global has strengthened its leadership team by adding new talent and enhanced business processes and governance across the organization. These initiatives will significantly increase organization effectiveness and create a platform that enable ABcann to establish its foothold in the Canadian and international cannabis space.

ABcann Global is a junior cannabis player holding a niche in cultivation technologies that deliver higher yields and consistent quality, which would be coveted by a bigger industry player. And its ample cash position makes a potential acquisition easier to swallow. ABcann currently trades at a market cap of $291 million and price to sales of 303x.

Disclosure: Neither the author nor his family own shares in the company mentioned above.

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