We are adding three new names to the Cannabis LONG list. TLLTF, VLNCF, and CNTMF. All three of these names can more than double in the coming 18-24 months. While all three companies are part of the secular cannabis growth story, the three names fit into the three themes listed below. VLNS and TLLTF will benefit from the shift in cannabis from the flower into extract-based products as the market matures.
VALENS (VLNS) LONG
Valens is based in Kelowna, BC V4V, Canada. Over a year ago, Valens went through a business transition to become the largest third-party manufacture of cannabis consumer packaged goods in Canada. Over the past year, the Company now manufactures and distributes what appear to be some of the most unique and innovative products in the Canadian market today across all Cannabis 2.0 categories. The Company currently has about a 5.5% market share in Canada and has recently launched a flower product in 2021. The stock was down significantly yesterday on the back of the $40 million capital raise. The Company plans to use the net proceeds from the offering to continue to pursue strategic growth initiatives in North America and provide funding for opportunistic acquisitions and general corporate purposes. They previously announced that they have entered into a definitive agreement to enter the US market by acquiring Green Roads, a CBD company, for $40 million in cash and share Transaction plus up to an additional US$20 million in contingent consideration payable upon the business achieving certain EBITDA milestones. The Acquisition of Green Roads gives Valens provides immediate entry into the US market with a CBD health and wellness brand with an established manufacturing and distribution platform. The Company has said the Green Roads Acquisition is expected to be accretive to the Company in 2021. “If all the Milestones are met in 2022, the Transaction represents approximately 4.5x fiscal 2022 EBITDA. On a pro forma basis, the combination of Valens and Green Roads results in a business which generated total revenue of C$111.6M in 2020.” The Company has also applied for a listing on the NASDAQ.
CANSORTIUM (CNTMF) LONG
Headquartered in Miami, FL, Cansortium has a vertically integrated license to produce and sell medical cannabis in Florida. In 2020, Florida accounted for more than 80% of revenues and should continue to account for about the same amount in 2021. The Company currently operates a cultivation and production facility in Tampa, Florida, which includes approximately 22,000 Sq. Ft. of indoor cultivation and flowering canopy over six levels. This cultivation facility is accompanied by a production and packaging facility where all packaged products, including edibles, are produced. The Company has recently commenced construction on a new adjacent facility with 20,000 Sq. Ft., mostly production packaging, and an additional grow. The Company currently operates 24 dispensaries in FL, with three more under construction. Cansortium is also the owner and operator of a cultivation and production facility and sells products via home deliveries in Texas, one dispensary in Pennsylvania, and an outdoor cultivation facility in Michigan. Post legalization CNTMF is strategically positioned to operate in three of the five largest states by population in the US. California has the largest population, followed by Texas, Florida, New York, and Pennsylvania. Trading at 2.3x and 5.5x 2022 revenues and EBITDA, the market places a discount valuation on these highly prized assets. Insider currently owns 29% of the Company.
TEXAS
In April 2021, the Texas House approved a bill that would expand the state’s medical cannabis program to include chronic pain, cancer patients, and Texans suffering from PTSD. The Senate is currently considering the bill before sending it to the governor to be signed into law. As of April 30, 2021, approximately 5,400 Texans registered with the state to use medical cannabis, though advocates estimate that over 2 million people are eligible based on current law. Cansortium has one retailer and one cultivation license in the state. Texas currently only has three active licenses total.
MICHIGAN
In 2018, Michigan became the first Midwestern state to legalize medical and recreational marijuana use. By December 2020, Michigan had experienced the highest sales growth of any legal cannabis market in the United States, realizing a 146% growth in gross merchandise value. More than $341 million in adult-use marijuana sales was reported for the fiscal year 2020. Cansortium owns two cultivation licenses in the state.
PENNSYLVANIA
Pennsylvania legalized the use of medical marijuana in April 2016, and by August 2020, approximately 230,000 Pennsylvanians were registered and approved to buy marijuana. In 2019, estimated sales were between $225 million and $275 million and between $400 million and $500 million in 2020. The state expects sales to reach $1 billion in the next three to four years.
TILT HOLDINGS (TLLTF) LONG
Like Valens, TILT has reshaped the Company for the future of cannabis, and 2020 was a seminal year in that transition. TILT was viewed as a disparate collection of subsidiaries in its previous life, with little thought to how the pieces fit together or the overall strategy. In 2020 the Company made a successful transition towards becoming an integrated operating company. The Company has a new CEO, Gary Santo, leading the change in the corporate strategy. On the surface, there now appears to be a focused leadership team committed to a strategic vision, nimble enough to navigate an ever-changing Cannabis landscape and capable of executing at a much higher level than before. For TILT, 2020 was about stabilizing and rightsizing the ship, and now 2021 is about execution, and 1Q21 delivered on that plan.
TILT strategy is unique in that it wants to work with other MSO and be their B2B partner of choice, introducing a strategy of partnering with brands that allow the Company to leverage its cultivation, manufacturing, and distribution capabilities and bring premium brands and products to the markets in which they operate. Being a distributor of Jupiter vaporizer products with performance-driven patented CCELL® products allows the Company to have several conversations with different MSO’s and has some very large clients. The Company also has a plant-touching business in the limited license states of MA, OH, and PA.
The Company is currently operating one medical dispensary in MA. It is likely to have two adult-use licenses before the end of the second quarter, allowing the Company to open its fully built-out Brockton and Cambridge dispensaries. The Company is also expected to add adult use to its existing dispensary in Taunton. The Company is also expanding cultivation in Massachusetts and seeing not only increased capacity but higher yields. In 4Q20, the Company reported harvest fail rates in the 30% range and now in the single-digit range.
Yields also continue to improve in PA. In 2020 the Company upgraded its PA cultivation, which is now essentially complete. During 1Q21, TILT doubled its extraction capacity, allowing for increased production of its high potency capsules first introduced to the market in late 2020. It has also allowed the Company to increase oil inventory, which will benefit its B2B relationships. The Company recently announced a partnership with Airo to launch that brand in the early summer.
Rounding out the cannabis operations in Ohio, where the Company recently completed the acquisition of our 9,600 square foot processing facility. In 2021 the Company will bring its Standard Farms branded products to OH and contract manufacturing and white label capabilities, completing the B2B strategy.
In summary, TILT has a plant-touching business in three high-priority limited license, fast-growing East Coast markets, making the Company an attractive B2B partner for brands and MSOs who want to partner with the Company.
