Aleafia Health Inc.
Aleafia’s wholly-owned subsidiary, Emblem, is the majority shareholder with 60% of the JV, and Aachen and Berlin-based firm Acnos owns the remaining 40%. It will purchase Aleafia Health branded cannabis oils and distribute them to German pharmacies.
Acnos has access to 110 distribution centres and supplies 20,000 pharmacies across the country, while it also wholesales pharmaceutical products throughout Europe.
Aleafia chairman Julian Fantino referred to Germany as the world’s largest medicinal marijuana market and spoke of his excitement about shipping health and wellness products to Europe. “By leaning on our own core competencies of producing high-margin value added products and leveraging the local supply chain expertise of our outstanding partners, we have significantly strengthened our international footprint and done so faster and at a fraction of the cost of an acquisition.”
An Underperforming Stock
Aleafia completed the C$175 million acquisition of Emblem in March 2019 and that created a combined entity with 40 clinics that have treated more than 60,000 patients in Canada. It followed up the purchase with a TSX listing on March 19 and the share price stood at C$2.39 then.
The stock has been steadily decreasing ever since then and it opened at just C$1.39 on Monday, May 6. It cannot seem to inspire any confidence among investors, despite its clear potential to become a major player in the Canadian cannabis industry.
Its production capacity will stand at 138,000kg of cannabis flower per year when expansions are complete at its various facilities this summer. It will also have annual extraction capacity of 50,000kg at another facility that will be ready in June, allowing it to produce a number of concentrates in-house to meet growing demand.
The acquisition of Emblem seemed like a sensible move in a consolidating cannabis industry, and the new entity has a much smaller market cap than several rivals that will produce a similar amount of cannabis per year. However, it has a relatively small cash balance that it could burn through and investors may fear a dilutive raise.
Despite its underperformance, the firm remains ambitious and Acnos is a strong operator to team up with as it seeks to capture a slice of the German market.
Piling into Germany
The European medicinal cannabis market is forecast to hit €58 billion ($65.6 billion) by 2028, according to Prohibition Partners, and Germany is leading the charge. It has the biggest economy on the continent and the fourth biggest in the world, so the opportunity is significant.
Canadian cannabis firms have been piling into Germany this year and TerrAscend recently announced it would begin sales there. Zenabis has just secured a deal to export to Germany and to import CBD from the European nation, while FSD Pharma is actively targeting expansion in Germany
Germany is completely reliant on imports right now to serve demand for medicinal marijuana. It has just embarked upon a domestic cultivation scheme, with three Canadian firms – Aurora, Aphria, and Wayland – awarded the coveted licenses, but production will be small and imports will remain important.
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