The Cannabis Market Continues its Sprawl as Legalization Efforts Intensify

FinancialBuzz.com News Commentary

NEW YORK, Sept. 12, 2019 /PRNewswire/ -- The cannabis industry has been witnessing robust growth throughout the U.S., largely due to increasing legalization and decriminalization efforts. Currently, 44 U.S. states have varying degrees of cannabis laws, however, under federal regulations, cannabis is still considered illegal. Additionally, U.S. legislation lists cannabis as a controlled substance. And the Controlled Substances Act (CSA) classifies cannabis as a Schedule 1 drug, primarily because of its marijuana derivative. Under the CSA, marijuana is viewed as a highly addictive drug and serves no medical benefits. Overall, cannabis is predominantly split into two derivatives, the hemp and marijuana plant. The marijuana plant causes cerebral-altering effects because of its THC or tetrahydrocannabinol content. On the other hand, hemp contains an insignificant amount of THC, but is rich with CBD, or cannabidiol. While the two are widely different in their biological makeups, THC and CBD both serve similar demographics. Specifically, THC and CBD are both being used for recreational and medical purposes. Researchers have also highlighted that both compounds can effectively treat a variety of medical conditions such as arthritis, chronic pain, and epilepsy. However, despite medical breakthroughs, the cannabis industry is still heavily hindered by legal barriers. And as research continues to undermine the stereotype revolving around cannabis, the overall industry is expected to become prevalent. According to data compiled by Ameri Research, the global legal marijuana market was valued at USD 14.3 Billion in 2016. By 2024, legal marijuana global sales are projected to reach USD 63.5 Billion while exhibiting a CAGR of 21.1% from 2017 to 2024. Americann Inc. (OTC: ACAN), HEXO Corp. (NYSE: HEXO) (TSX: HEXO), OrganiGram Holdings Inc. (NASDAQ: OGI) (TSX-V: OGI), KushCo Holdings, Inc. (OTC: KSHB), Emerald Health Therapeutics, Inc. (OTC: EMHTF) (TSX-V: EMH).

Over the past several years, the cannabis industry has made historic milestones to almost completely redefine itself. In particular, most legislation passed was strictly for CBD applications, however, individual states moved to pass their own cannabis legislation as well. Notably, the U.S. passed the Farm Bill in 2018 which essentially federally legalized hemp-derived CBD products. Shortly afterward, many retailers began to stock CBD products on shelves as well as on e-commerce platforms. Moreover, Michigan and Illinois passed ballots to legalize recreational cannabis. Both markets are expected to witness immense revenue growth in their first year. For example, Michigan is projected to bring in annual sales of USD 949 Million after the market is fully established in 2020, according to the state House Fiscal Agency. On the other hand, Marijuana Business Daily projects that Illinois' recreational cannabis program, which will launch in early 2020, could generate upwards of USD 2.5 Billion a year. To put it into perspective, Colorado, which legalized recreational cannabis in 2014, reported USD 1.54 Billion in annual cannabis sales in 2018. The forecasts for Michigan and Illinois highlights that the misconception and stereotype revolving around cannabis is beginning to fade amongst the public. Researchers are continually releasing data and clinical trials that proves cannabis is a major economic growth factor as well as a breakthrough treatment within the healthcare industry. "The industry is at about 5 percent of what it will be someday," concurs Tyler Stratford, Director of Client Operations for cannabis consulting firm Canna Advisors. "Even if the path forward isn't straight, we're certainly on a path forward. The tide has changed, and there's no turning it back now."

Americann Inc. (OTCQB: ACAN) announced earlier last month that it has, "recently received a Certificate of Occupancy for Building 1 of AmeriCanns Massachusetts Cannabis Center (MCC) in Freetown, Mass. The construction milestone commences the 15-year JV Partnership with Bask, Inc., an existing Massachusetts licensed vertically-integrated cannabis operator, which will occupy 100% of MCCs Building 1 as of September 1, 2019.

Previously, AmeriCann and Bask had signed a 15-year Joint Venture Partnership for Bask to operate the 30,000-square-foot greenhouse facility. As such, AmeriCann will receive Revenue Participation Fee of 15 percent of gross revenue on all products produced and sold from Building 1.

Bask has been a great partner and we are excited about our partnership for the first phase of our Massachusetts project said Ben Barton, CFO of AmeriCann. The opportunity to scale up the innovation and technology from Building 1 to the next phase of construction is tremendous.

The MCC is being developed on a 52-acre parcel located in Southeastern Massachusetts. The MCC project is permitted for 987,000 sq. ft. of cannabis cultivation and processing infrastructure for the existing medical cannabis and the newly emerging adult-use cannabis marketplace.

We look forward to our move into the new facility at the Massachusetts Cannabis Center and to continuing our relationship with AmeriCann, said Chapman Dickerson, CEO of Bask. We are experiencing tremendous demand for cannabis throughout Massachusetts. This state-of-the-art facility will allow us to serve more cannabis patients and consumers throughout the Commonwealth.

The Massachusetts cannabis market has some of the highest prices in the United States, with wholesale prices reaching $4,000 per pound and retail prices greater than $7,000 per pound. Building 1 is projected to produce 7,500 pounds annually of dry flower cannabis and over 400,000 units of infused products. AmeriCann projects a 1.5 year payback on its investment in Building 1.

AmeriCann recently announced plans to become a licensed producer of cannabis in Building 2 at the MCC. AmeriCann will occupy and operate a 118,000 square foot cannabis cultivation facility and a 40,000 square foot extraction and product manufacturing business to be located in Building 2.

AmeriCanns Cannopy System, which will be used at the MCC, enables cannabis to be produced with a greatly reduced carbon footprint, making the final product cost less with higher margins. AmeriCann uses hybrid-greenhouse technology, which is superior to the current industry standard of growing cannabis in warehouse facilities under artificial lights. According to industry experts, by capturing natural sunlight, greenhouses use 25 percent fewer lights, and utility bills are up to 75 percent less than in typical warehouse cultivation facilities. Massachusetts has some of the highest energy costs in the nation, providing an even greater advantage to the MCC.

AmeriCann plans to replicate the brands, technology and innovations developed at its MCC project to new markets as a licensed multi-state operator (MSO).

As the first approved adult-use cannabis market on the Eastern U.S., Massachusetts has the potential to become the epicenter for cannabis innovation and research. According to the Cannabis Control Commission, Massachusetts recreational dispensaries have sold more than $160 million worth of cannabis products since recreational sales began in November 2018. Recreational retail sales are expected to total $1.3-1.6 billion in a few years, according to Marijuana Business Daily estimates.

About AmeriCann: AmeriCann (OTCQB: ACAN) is a cannabis company that is developing cultivation, processing and product manufacturing facilities. AmeriCann uses greenhouse technology for cannabis cultivation and is designing GMP Certified cannabis extraction and product manufacturing infrastructure. Through a wholly-owned subsidiary, AmeriCann Brands, Inc., the Company intends to secure licenses to cultivate cannabis and produce cannabis infused products including beverages, edibles, topicals, vape cartridges and concentrates. More information about the Company is available at: www.americann.co"

HEXO Corp. (NYSE: HEXO) (TSX: HEXO) is an award-winning consumer packaged goods cannabis company that creates and distributes prize-winning products to serve the global cannabis market. HEXO Corp. and Newstrike Brands Ltd. recently announced that they had entered into a definitive arrangement agreement under which HEXO will acquire, by way of a plan of arrangement under the Business Corporations Act (Ontario), all of Newstrike's issued and outstanding common shares in an all-share transaction valued at approximately USD 263 Million. The Transaction gives HEXO the capacity to produce approximately 150,000 kg of high-quality cannabis annually. The Transaction also provides HEXO access to four cutting-edge production campuses totalling close to 1.8 million sq. ft. of near-term cultivation space and diversified growing and production techniques. This is in addition to HEXO's 579,000 sq. ft. facility for a manufacturing and product development center of excellence in Belleville, Ontario. Combined, HEXO and Newstrike have established distribution agreements in 8 provinces including Ontario, Quebec, British Columbia, Alberta, Saskatchewan, Manitoba, Nova Scotia, and Prince Edward Island, allowing broad consumer access to HEXO's products across Canada. Newstrike's licensed indoor facility provide HEXO with access to diversified growing techniques and positions HEXO for flexibility for international exports as global cannabis markets continue to open. "We're thrilled to welcome the Newstrike team into the HEXO family.  Jay Wilgar (Chief Executive Officer of Newstrike) and his team have built incredible relationships, including teaming up with The Tragically Hip, and they share HEXO's vision of bringing exceptional branded cannabis experiences to adults everywhere," said Sebastien St-Louis, Chief Executive Officer and Co-Founder of HEXO Corp "With Newstrike, we're adding talented employees and infrastructure to take HEXO to the next level on our journey to become one of the largest cannabis companies in the world. We're extremely proud of our record of execution, and today are committing to achieving over USD 400 Million in net revenue in 2020."

OrganiGram Holdings Inc. (NASDAQ: OGI) (TSX-V: OGI) is a NASDAQ Global Select and TSX Venture Exchange listed company whose wholly owned subsidiary, Organigram Inc., is a licensed producer of cannabis and cannabis-derived products in Canada. Organigram Holdings Inc. the parent company of Organigram Inc. recently announced that it had entered into an advance payment and purchase agreement with 703454 N.B. Inc. (carrying on business as 1812 Hemp) under which the Company will pre-fund hemp purchases to receive access to as much as 60,000 kilograms of dried hemp flower to be harvested in calendar 2019 for extraction into cannabidiol ("CBD") isolate. "Access to a large, consistent volume of CBD-producing hemp has become increasingly important as Canadians express their demand for CBD-rich products for use in both recreational and medical capacities," said Greg Engel, Chief Executive Officer, Organigram. "We've heard the call for CBD in the market and this agreement positions Organigram to meet that demand."

KushCo Holdings, Inc. (OTCQX: KSHB) is the premier producer of ancillary products and services to the cannabis and hemp industries. KushCo Holdings, Inc. recently announced the creation of its new Retail Services division. The new business unit will focus on providing comprehensive retail solutions, through strategic partnerships with best-in-class sales agencies, to leading CBD brands. KushCos retail services division will focus on industry education and compliance, as well as building distribution networks of CBD brands across conventional retail channels. With Retail Services experienced leadership optimizing growth opportunities, this division will expand the Company's platform and fuse two industries that have historically operated independently of each other. In his position as Vice President of Retail Services, Ryan Savage will oversee sales agency partnerships, including C.A. Fortune, a leading full-service national consumer products sales and marketing agency focused on lifestyle brand partnerships. In addition, he will manage the expansion of CBD into the retail space across all channels, driving sales through management of brands, brokers and customers to increase distribution and revenue growth. Ryan Savage has spent the past 15 years gaining knowledge of multiple aspects of the consumer packaged goods (CPG) industry. He has worked with many diverse, major retailers including Sprouts, Trader Joes, Target, Amazon, and Kroger, in both a branded and private label capacity.

Emerald Health Therapeutics, Inc. (OTCQX: EMHTF) (TSX-V: EMH) is a Canadian licensed producer of cannabis products, with strategic initiatives focused on differentiated, value-added product development for medical and adult-use customers supported by novel intellectual property, large-scale cultivation, extraction, and soft gel encapsulation, as well as unique marketing and distribution channels. Emerald Health Therapeutics, Inc. recently announced that its 50%-owned joint venture for large-scale, low-cost, high-quality cannabis production, Pure Sunfarms, had received from Health Canada the amendment to its license permitting it to sell and distribute packaged, Pure Sunfarms-branded dried cannabis products directly to provincial/territorial wholesalers and authorized private retailers in accordance with provincial/territorial frameworks in Canada. Pure Sunfarms currently has supply agreements in place with the Ontario Cannabis Retail Corporation ( "OCRC", operating as the Ontario Cannabis Store) and British Columbia Liquor Distribution Branch ("BCLDB"). "With one of the leading cultivation platforms in the Canadian industry in terms of scale, production cost, and gross margin, and rapid sales growth initially as a supplier to other licensed producers, Pure Sunfarms is ready for its next stage of growth," said Riaz Bandali, Chief Executive Officer of Emerald. "Launching its own branding, and selling directly to provinces and territories, will enhance Pure Sunfarms' ability to directly serve consumers. Considering that the current production run-rate of 75,000 kilograms is expected to expand to at least 150,000 kilograms by the end of next year, we expect the joint venture to achieve a strong nationwide presence." 

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