Aleafia Health Inc.
The firm saw its shares increase 23% to C$2.77 when it initially announced it had snapped up a 10% equity stake in the CannaPacific back in Nov. 2018. It said it hoped to gain future market access to the Asia Pacific region through its relationship with the company, and now it has decided to increase its strategic investment.
CannaPacific has embarked upon AU$4.5 million (US$3.2 million) capital financing in order to boost growth. It follows the acquisition of a 108,000 sq. ft. greenhouse in Byron Bay, near Sydney.
The greenhouse will produce cannabis for Australia’s medicinal market and for exports. “With the closing of our 108,000 sq. ft. greenhouse facility and strategic relationship with a medical cannabis leader, we expect to accelerate our first to market strategy in Australia along with our objective of becoming a major exporter of medical cannabis products,” said Joshua Dennis, chief executive at Canna Pacific.
Significant Opportunity Down Under
Researchers at the Arcview Group estimate that the Australian medicinal marijuana industry will be worth AU$1.2 billion by 2027 (US$870 million), up from just AU$52 million (US$37 million) in 2018. Prohibition Partners predicts it will get to AU$1.2 billion by 2024 and then hit AU$3 billion (US$2.1 billion) by 2028. Either way, it looks like a significant market is gathering pace and several Canadian producers are muscling in.
Aleafia will have a capacity of 138,000 kg per year after completing an all-stock deal to buy Emblem. It has facilities in Port Perry, Ontario, the Niagara region, and Scugog, Ontario.
It also operates a number of clinics in Canada, so it has considerable insight into patient demands, while its products are sold via Shoppers Drug Mart across Canada, and in various provinces.
CannaPacific aims to capitalize on this expertise to help it grow its business.
Another String to Aleafia’s Bow
“With an experienced management team, major cultivation assets, along with Aleafia Health’s cross platform expertise in clinic operations, product development and online sales, CannaPacific is poised to seize on its early mover advantage in the Australian medical cannabis market,” said Aleafia Health chief executive Geoffrey Benic.
CannaPacific also has operations in Newcastle and the Macleay Valley, both in New South Wales, but the Byron Bay site significantly increases its capacity.
The firm will use Aleafia’s education platforms to help teach Australian doctors, patients, and employers about the benefits of cannabis. It will also use Aleafia’s soon to be launched ecommerce platform, which has been built to comply with multiple jurisdictions around the globe.
It is certainly another string to Aleafia’s bow, but some investors may be concerned to see it spending more cash on this venture. The combined cash balance of Aleafia and Emblem stands at around C$70 million, and a dilutive cash raise could be in the cards if it burns through that soon.
Yet it could be well worth the investment if CannaPacific takes off. Australia has the world’s 14th largest economy, not much smaller than Canada’s. It legalized medicinal cannabis at a federal level in Feb. 2016 and some states are considering legalizing marijuana for recreational purposes.
An even bigger prize could be Asia, as it has a huge population and countries like Thailand and South Korea have recently permitted medicinal cannabis use. There are free trade agreements between Australia and major Asian countries.
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