Recent moves by both New Jersey and Pennsylvania towards marijuana legalization are pushing expectations on US stocks ahead of their neighbors to the North. Analysts are observing a valuation gap between Canadian and US cannabis stocks developing, despite US-based revenues surging ahead. The result has been a recent increased focus on US-based companies such as Chemistree Technology Inc. (CNSX:CHM.CN) (OTC:CHMJF), Planet 13 Holdings Inc. (CNSX:PLTH.CN) (OTC:PLNHF), KushCo Holdings, Inc. (OTC:KSHB), Charlotte’s Web Holdings, Inc. (OTC:CWBHF) (CNSX:CWEB.CN) and Tilray, Inc. (NASDAQ:TLRY).
Among the top 10 companies in the cannabis sector by market value, the split is now currently 50/50 — Canadian vs American. As the market begins to realize the huge potential of the US market, entities like vertically integrated Chemistree Technology Inc. (CNSX:CHM-CN.CN) (OTCQB:CHMJF)are continuing to forge ahead in increasing their US footprint.
Through its US subsidiary, American CHM Investments, Chemistree Technology Inc. (CHM) (CHMJF) recently announced an LOI to partner with New Jersey-based medical dispensary applicant, Applied Cannabis Sciences of New Jersey. The move further expanded the company’s reach to three states, with the first two being Washington and California.
Growing across multiple states has quickly become a plausible strategy for many growing US cannabis companies. With promising new legal developments such as the initial passing of the SAFE Act by the House Financial Committee, it appears that the sector is gaining support in high places. Next up, consideration by the entire House of Representatives for a vote on the bill which already has 150 sponsors could be the nudge the industry needs to get full federal legalization rolling.
Gaining A Stars-and-Stripes Advantage
Over the last few years, the legal cannabis advantage went to Canada and Canadian operators in particular. Given that US operations have been held back by the illegality of the drug at the federal level, US-based operators have had to deal with unique challenges along the way.
However, to many analysts, that advantage is disappearing, and swinging into the Americans’ favor.
“On a whole bunch of fronts, the head start that we had is rapidly eroding,” said Neil Selfe, CEO of Infor Financial Group Inc., in an interview with Bloomberg.
Selfe’s group is recognized as one of the top investment bankers in the cannabis industry. What Infor is noticing is that Canadian companies have their own limitations and restrictions as well.
“In many ways, the U.S. multi-state operators have a significant competitive advantage now over the Canadian companies,” Selfe added.
New markets are opening up across the country, including the “Garden State” of New Jersey, which is expected to be worth US$850 million. A vote in the state on legalization could be as early as next month.
Getting out ahead of the rush, Chemistree Technology Inc. (CHM – CHMJF) has already gone ahead and secured a potentially powerful footprint for its products in the state–through a deal with Applied Cannabis Sciences of New Jersey that will likely open up the company’s flagship Sugarleaf brand to the East Coast.
The first round of New Jersey dispensary applications is expected to be for 2020. Applied Cannabis Sciences has been established by a team of seasoned professionals from the legal medicinal, and adult-use cannabis industry whose collective experience exceeds 50 years and includes over 20 cultivation, processing, and manufacturing licenses across four states (WA, OR, CA, and CO) within the USA.
“We are really happy about establishing a partnership with this experienced group and the potential to expand Chemistree’s presence outside of California and Washington state and ultimately introduce our signature brand Sugarleaf to the large New Jersey consumer base.” Said CEO of Chemistree, Karl Kottmeier. “New Jersey is home to over nine million people currently being served by only 12 cannabis operators in its medical program. New Jersey is a logical place for Chemistree to expand into and bring the Sugarleaf brand to the New Jersey market.”
Currently the Sugarleaf brand, which Chemistree Technology Inc. has the global brand and marketing rights to, is being marketed in both California, and in Washington, where it was originally developed.
Chemistree Technology Inc. (CHM) (CHMJF) has a significant presence in both markets. The company officially entered the California market back in December of 2018, solidifying the purchase of 9.55 acres in California’s prominent Desert Hot Springs Cannabis Cultivation Zone. The total plan for the facility includes two 64,000 sqft greenhouses, and a 40,000 sqft processing and product development facility. Overall, the site has the development potential for 205,000 sqft of greenhouse space in three separate buildings and would produce ~50,000lbs per year.
The company also launched with a Humboldt County-based cannabis processing company, which holds an extraction license in the state, and uses a supercritical CO2 extraction method to produce cannabis oil, terpene profiles, and other products.
Together with its Washington State licensee partners, Chemistree Technology Inc. (CNSX:CHM.CN) (OTCQB:CHMJF) has big plans to expand its product offerings, specifically through the Sugarleaf brand. New products including edibles, vape pens, and other innovative offerings will be available in multiple states in 2019.
Others Also Serving the US Cannabis Market
To put US advantages more into perspective, Planet 13 Holdings Inc. (CNSX:PLTH.CN) (OTCQB:PLNHF) recently generated more revenue from its one flagship store in Las Vegas in just one month, than multi-billion-dollar valued Cronos Group Inc. did across Canada in Q4 2018. However, at the moment, Cronos has a market value of approximately 21 times that of Planet 13. The Planet 13 Superstore, a 16,000 sqft cannabis entertainment complex has over-performed since inception. Designed to handle 2,000-3,000 customers per 24-hour day, 7 days a week. During the month of March, the single operation reported revenues of US$5.49 million. Since its opening, its amassed $16.7 million, and is on pace for $50 million annually.
US-based packaging and periphery company KushCo Holdings, Inc. (OTCQB:KSHB) has also seen its revenues take off. The company’s latest Q2 2019 reports showed an increase of 240% in net revenue year-over-year, to approximately US$35 million. The announcement raised the company’s full-year fiscal 2019 net revenue guidance up from $140 million to $150 million. KushCois one of the industry’s largest suppliers of packaging that meets regulatory requirements. With each new market that opens up, demand for their products also increases.
Since the passing of the US 2018 Farm Bill, that pointed towards federal legalization of cannabidiol (CBD), Charlotte’s Web Holdings, Inc. (OTCQX:CWBHF) (CNSX:CWEB.CN) has become a market leader in CBD. Since the first waves of the Farm Bill’s passing back in November 2018, the company’s seen its share price increase over 111%. Analysts are expecting CWEB to generate fiscal 2019 revenue and EBITDA of US$251 million and US$70.6 million, respectively, and fiscal 2020 revenue and EBITDA of US$528.2 million and US$198.4 million respectively.
Also shifting its focus away from Canada and towards other markets such as the US and Europe is Tilray, Inc. (NASDAQ:TLRY). The company has stated that it finds the latter two markets to have the highest growth potential, and feels they’ll avoid what they call “overpriced supply assets” in Canada. Tilray saw its revenues soar more than 200% year-over-year to US$15.5 million during the quarter ending December 31, 2018. Earlier this year, the company announced a deal to acquire Hemp Hearts-maker Manitoba Harvest for up to CAD$419 million in cash and stock, as the two companies look to launch CBD-infused products into the US where permissible.
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