Blog

Part III … [see the previous post for Part I and Part II]

Oversupply and Drop in Average Selling Price (ASP)

Compiled from companies’ SEC filings.

TLRY is the only company that didn’t double its sales from Q3 to Q4. The driver here should be the channel discount. CGC’s Q4 sales in kilograms is almost five times the same figure in Q3 (2,197kg -> 10,102kg), while TLRY is only modestly growing comparatively (1,613kg -> 2,053kg, but still very impressive compared with other industries).

Part II … [see the previous post for Part I]

Acquisitions of Supply

To keep up the revenue growth, global partners and their distributions networks are important while expanding supplies is as essential.

Building their own facilities is a must (especially for GMP capacities medical uses) but slow. Acquisitions are needed and done frequently.

These acquisitions are also helping with global distributions and footprints/presence (entry by acquisition). If they produce/manufacture/supply, they must also have sales channels.

• • February 20, 2019: TLRY to acquire Manitoba Harvest for up to C$419 million; completed in February; the world’s largest hemp food company; a broad-based portfolio of hemp-based consumer products, sold in over 16,000 stores across the U.S. and Canada; has two high quality BRC AA+ certified manufacturing facilities, and access to relationships with farmers who plant more than 30,000 acres of hemp
  • January 22, 2019: TLRY to acquire Natura for up to C$70 million; completed in February; capable of producing plants in a 662,000 square feet greenhouse facility, of which 155,000 is currently licensed
  • January 4, 2019: ACB to acquire Whistler Medical for up to $175 million; completed in March; Whistler, providing premium brand/products, has two facilities, with a combined expected production capacity of over 5,000 kg per year; the second facility is being built for compliance with EU GMP standards
  • December 10, 2018: ACB to acquire Farmacias, Mexico’s first and only federally licensed importer of raw materials containing THC; providing 80,000 retail points for CBD products + 500 pharmacies and hospitals for the distribution of THC products; owns and operates a high-quality 12,000 square feet facility
  • October 9, 2018: TLRY to acquire Alef Biotechnology for C$5 million; licensed by the Chilean government to commercially produce medical cannabis; to create a hub to distribute TLRY products throughout Latin America
  • September 10, 2018: ACB to acquire ICC Labs for $290 million; regulatory approval received in November; ICC is expanding rapidly to bring an estimated annual production capacity to over 450,000 kg; two greenhouse facilities currently operational, approximately 92,000 square feet

ACB:

acquisition of ICC Labs, a leading cannabis company with over 70% market share in Uruguay and medical cannabis licenses in Colombia.

Other supply agreements are also crucial to expand capacity. For example, TLRY and LiveWell Canada entered into a supply agreement in December 2018 (finalized in March 2019) that LiveWell will supply TLRY with a monthly quantity of up to 300 kilograms of hemp-derived CBD isolate, or an equivalent amount of full-spectrum CBD extract, with an option to increase to 500 kilograms per month.

Already, these companies find assets are rising in price, making their acquisitions’ returns lower.

TLRY:

We will not purchase or invest in what we believe to be overpriced supply assets in Canada, which we believe will erode in value in the medium to long term, as the market normalizes.

Global Market Choices & Comments

TLRY:

…while Canada will continue to be an important market for us, we expect to focus the majority of future investments on the U.S. and Europe.

In the next year, we anticipate distributing medical cannabis to at least a half a dozen more countries globally through this partnership with Sandoz.

Our seven production facilities around the world are significantly increasing our global production output compared to 2018.

So, the UK, Australia, New Zealand, we continue to see growth there. Really Chile, Argentina, Peru, Brazil are really early on in their growth curve. And then, in Europe, Czech Republic, Croatia, Cyprus are all countries that we already ship to.

CGC:

So Europe as a region we have a strategy of investment that covers four countries, South America, four countries, Australia and each of those will have a yield that goes out over anywhere from 1.5 to 3 years.

We expect to see Denmark beginning to supply European markets this coming September and also to contribute to the margin.

ACB:

Our ability to execute on this objective is strengthened by our substantial hemp assets gained through our ownership of Agropro, Europe’s largest organic hemp producer as well through Hempco in Canada and ICC in South America.

Aurora’s presence now spans 22 countries on five continents. A look into two regions Europe and Latin America with a combined population in excess of a billion people. In Europe, we continue to capitalize on the strong central presence we established in Germany. In early October, we became the first private company to be granted an import permit for medical cannabis into Poland.

There are total of 8 EU GMP certified production facilities in the world and we have two of them, plus we have our EU GMP certified distributor Aurora Deutschland.

[Update 3/26] CRON:

Cronos Israel, with the Israeli agricultural collective Kibbutz Gan Shmuel. Cronos Israel is focused on the production, manufacturing and distribution of medical cannabis and is in full construction. We anticipate the construction of the 45,000 square-foot greenhouse will be complete in the first half of 2019, and construction of the manufacturing facility will be complete in the second half of 2019. Cronos holds an effective 90% economic equity ownership across the entities Cronos Israel.

In 2018, we also brought our production model to Latin America. Cronos announced a JV with a leading Colombian agricultural services provider with over 30 years of research and expertise, managing industrial scale horticultural operations. This partnership establishes a newly formed entity, NatuEra in Colombia that will develop, cultivate, manufacture and export cannabis-based medical and consumer products for the Latin American and global markets. NatuEra was granted a license to cultivate non-psychoactive cannabis plants to produce seeds for planting and the manufacture of derivative products.

We see Europe and Asia Pacific to be extremely important markets for the future, but in the near term, it is our belief that the development of pharmaceutical form factors and delivery systems for medical cannabis will play a crucial role in growing the prescription and patient base in these markets.

The Company owns a 50% equity interest in Cronos Australia and believes that Cronos Australia will serve as its hub for Australia, New Zealand and South East Asia, bolstering the Company’s supply capabilities and distribution network in the Australasia region.