As I have stated before, if you are going to look into investing into publicly traded marijuana stocks, Canada is the logical place to look. They are the world leaders now in the marijuana industry and with adult-use sales set to begin on October 17th, it not only opens the doors to a whole new and larger demographic of consumers but also new nationwide business regulations that can allow these companies to unfold their wings and take flight. We have already covered the biggest players in the cannabis space, you know who they are. Their share prices have jumped big in the last few months as anxious investors worry that they might miss out once recreational sales begin. Many of the major players may be overpriced now.
- Khurram Malik
- What a solid business plan means to people investing in the cannabis sector
- Significance of Atlantic Canada marijuana grow locations
- Marijuana distribution best practices
- Technology’s role in marijuana business
That is why, if you are going to look at a stock fundamentally, there are certain elements of a company you want to look for. We are in a technological era that will only embed itself further into business as time goes on, has the company embraced technology? What about its infrastructure? Are the executives experienced at building and scaling businesses? What about assets other than cash? Don’t get me wrong, capital is important, but assets like licenses, property for growing production and forward contracts for sales are not necessarily easy to come by in this restricted industry. All of these assets add up to investor wealth, whereas capital by itself can be burned through without a well thought out business plan.
While scouring through the Canadian cannabis space I came upon an interview by the head of research at Jacob Capital Management Inc., Khurram Malik. Jacob Capital is a well-known financial advisory firm that consults with companies on nearly everything from clean energy to mining. He has been analyzing the marijuana sector thoroughly for about the last six years. He also played an intricate role in raising financing and developing some of the most massive marijuana brands in Canada like Mettrum, Tweed and Organigram. Tweed is the cannabis brand for Canopy Growth Corporation and I interviewed Ray Gracewood, the CCO for Organigram, earlier this year.
It turns out Khurram Malik is now the CEO for a company called Biome Grow. It also looks like the company is planning on going public on the Canadian Securities Exchange soon through a reverse merger with a company called Orca Touchscreen Technologies Ltd. (CSE:OAA). Whenever the transaction is completed Biome would trade under the stock symbol BIO on the CSE, pending all usual approvals. I don’t know when that will happen but I thought that if Mr. Malik thinks Biome is ready to go public, it is worth taking the time to find out more.
The way I see it, as long as there is not enough supply of marijuana in the world, then there is still plenty of room for a smart cannabis company to make waves despite the fact that there will probably be only about four or five major cannabis companies in Canada after the little ones are bought out or go out of business. To give you some frame of reference on that, Canadian consumers do not matter a whole lot to the bottom financial line of big cannabis. While Canada has almost as much square mileage as all of Europe, Canada only has a population of a little over 36 million versus Europe’s population which is over 741 million. Many of the countries in Europe also have very robust healthcare systems and some, like Germany, will even pay for medical marijuana for its patients.
If you read through Biome’s about us page, they emphasize how they have focused on obtaining grows in, what they refer to as, Atlantic Canada. Why is that significant? The answer is: a lot of saved money. It is the sort of thinking that a good financial advisor embraces. How much more does it cost to transport your product all the way from the west coast of Canada and then ship it across the Atlantic to Europe? If you build your infrastructure on the shores of the ocean that you need to ship your goods across, it could save many millions of dollars in transportation costs every year. Biome owns several grow operations right on the east coast, including one in Nova Scotia and one in Newfoundland and Labrador, as well as a facility in Ontario.
That leads to the next important factor when fundamentally analyzing a cannabis company. What is their production capacity? The Highland Grow Inc. and Back Home Cannabis Corporation acquisitions gave Biome both land and a license to grow, with locations in Nova Scotia, Newfoundland and Labrador. The Nova Scotia facility will be built out to a 100,000 square foot facility that should be completed by mid-next year and the Newfoundland and Labrador facility will be built out to 168,000 square feet by mid-next year as well. Another facility in Ontario will be expanded to 87,000 square feet by the end of this year. According to Mr. Malik, Biome already has their marijuana contracted out even before they have grown it.
Let’s discuss how they plan to optimize their presence for Canadian consumers. Constellation Brands, the massive alcohol distributor for brands like Corona, has purchased a massive piece of Canopy Growth Corporation. What do they bring to the table for a cannabis company? Well put simply, their network of clients. They make distribution of the cannabis in Canada easy. Having watched closely the process that the massive companies in the cannabis space have gone through, Biome brought in Steven Poirier as a Board member and advisor. He is the former president of Moosehead Beer, the third largest alcohol company in Canada. Mr. Poirier also ran the sales department of Arterra Wines Canada, formerly a part of Constellation Brands. In other words, Biome brought the alcohol distribution network into the fold already. 77% of Canadians are alcohol drinkers according to Statistics Canada, if that sums it.
Moving to technology, it plays two roles for the cannabis industry. One is increasing production capacity without massive costs through automation. Biome plans on building all of these production facilities around automation and innovative design. While we may mostly speak about how large the square footage of grow facility is, with modern technology and innovations in engineering, we also have to look at how tall structures are to facilitate vertical grows. Biome’s plan is to use automation to grow as much quality cannabis as possible and do it affordably. It is difficult to estimate how much marijuana they will produce, but they think the Newfoundland and Labrador facility alone will be able to produce over 66,000 pounds of marijuana in a year by 2020. Relative to Canopy that is not much, but when you analyze a company everything is proportionately relative. In other words, Biome is not as big as Canopy, but for investors that would be irrelevant compared to growth potential.
Technology today is also for the consumer. Canada will allow home delivery of marijuana, so many marijuana consumers will hardly ever step into a brick and mortar dispensary if they do not have to. How can a cannabis company then best provide consumers with a customer service experience that will optimize sales? The internet of course, but what a well laid out landing page was five or ten years ago is nothing next to virtual reality. One of Biome’s most recent acquisitions was Weed VR, which provides consumers with an in-store dispensary experience from the comfort of their own home. You can pick marijuana buds up and examine them, do strain comparisons and get a complete breakdown of THC to CBD ratios. Essentially, it allows consumers to make educated and informed decisions about the products they’re buying. Check out the video below to take a glimpse.
Khurram Malik has all the advantages. He gets paid to tell businesses how to make money in the first place. He has been able to take a close look under the hood at the cannabis industry and has learned from others’ mistakes while taking no financial risks upon himself. He knows that massive amounts of capital do not hurt, but that it also does not necessarily translate into a successful business. It is the components of the business and how they work together that makes the money. He has also brought George Smitherman onto Biome’s Board as an advisor. Mr. Smitherman is the former Health Minister for Ontario that has many political connections in Canada and politics always play a large role in business. Biome already has a license to grow with more to come, the production capacity, the technology and most of all, a solid business plan. Does this mean Biome will be the next major player in Canada’s marijuana industry? I don’t know, but from an analyst’s perspective there are not many missing variables.
Biome Grow wholly owns THC Dispensaries Canada Inc.
You can find out more about their company at BiomeGrow.com and their social media properties listed below.
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