Invictus MD, CannAmerica Brands CBD JV Looks Promising

Invictus MD Strategies Corp. (TSXV:GENE), one of the Canadian marijuana stocks, said its Board has approved the CBD joint venture with CannAmerica Brands Corp. (CSE:CANA), CBDistribution Company

SmallCapPower | January 30, 2019: Invictus MD Strategies Corp. (TSXV:GENE), one of the Canadian cannabis stocks, Monday announced that it has received approval from its Board of Directors to enter into its previously-announced (January 7) Hemp and CBD Joint Venture with CannAmerica Brands Corp. (CSE:CANA) and CBDistribution Company Ltd. (CBDC). The move is part of Invictus MD’s strategy to enter the burgeoning CBD market in the United States.

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Each company intends to contribute one third of the effort as follows:

  • Invictus MD plans to issue a $5M line of credit towards the equipment (5% interest)
  • CannAmerica intends to be the operator and advisor
  • CBDC plans to source the hemp biomass procurement, marketing, branding and the eventual commercialized of the finished products

This is one significant step further for the JV to be completed by January 31.

With regards to the hemp market, in general, most companies are shifting their sights towards the highly-profitable CBD markets. In a lot of cases, margins at the moment are better for hemp than cannabis because of several important reasons: 1) demand, both in Canada and the United States, vastly outweighs supply; 2) COGS, for producing hemp is significantly lower than cannabis on a relative basis, especially if produced outdoor and; 3) there is a lack of expertise for producing hemp, leaving room for first-mover advantage. For these reasons, we believe there is an attractive window, at least in a one-to-two-year window, to invest in hemp-pursuing companies with capital and know-how, such as Invictus MD and CannAmerica Brands.

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However, investors should be aware of the risks involved, as well as the markets in which they are investing, as the supply and demand curves for cannabis and hemp may shift drastically across the U.S. and international markets. For instance, in California, companies that produce distillate are finding that margins are contracting, to the point where their corporate strategy is shifting from various derivative products. By comparison, in Canada, the market for distillate is just emerging, and the margins are far higher.

Following the announcement, shares of Invictus MD added nearly 3% to close at $1.20 on the TSXV, while CannAmerica Brands stock gained more than 6%. Invictus MD Strategies currently trades at a market cap of $126.8 million.

Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.

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