Aleafia Health Inc.
A one-time, non-cash payment to complete its acquisition of Emblem accounted for $13.2 million of that loss, but it was enough to halt the stock’s recent rally. ALEF decreased from $2.77 on Feb. 5, 2019, to $1.56 on Apr. 29, despite completing its $175 million purchase of Emblem on Mar. 14.
The firm’s share price tumbled again after it reported a net loss of $9.7 million on operations in 2018, and it was down to $1.38 on May 3. However, it increased 26.8% last week and reached $1.75 as trading closed.
That could be attributed to the update on its expansion into Germany, where it is setting up a joint venture with pharmaceutical wholesaler Acnos Pharma GmbH. Acnos distributes to 20,000 pharmacies across Germany and it has many more accounts in the rest of Europe.
Yet today’s news has halted the momentum and ALEF opened at $1.73 before decreasing to $1.66 within the first hour of trading.
The firm reported revenue of $1.5 million for the first quarter of 2019, up from $100,000 in Q1 2018. It has strengthened its balance sheet since the Emblem acquisition and it had cash of $61 million at March 31, 2019, compared to $29.2 million at December 31, 2018.
Yet there is still a risk it could burn through that quickly and be forced into a dilutive raise. Otherwise, Aleafia looks to have considerable upside, given its small market cap and its strong potential for growth since swallowing up Emblem.
It saw the two companies’ medicinal cannabis clinics, Canabo Medical Clinics and GrowWise Health, integrate and the combined entity should receive synergistic savings as a result of merging. Between them they have seen more than 60,000 patients and that provides the firm with a wealth of insight.
Aleafia is now on course to produce 138,000kg of cannabis flower per year, while it will have extraction capacity of 50,000kg, which could be important as edibles and other concentrates are legalized in Canada this October.
Upside for ALEF?
Last week Health Canada announced that it has overhauled its cannabis licensing process in a bid to cut waiting times and alleviate supply shortages across the country. The news received a mixed response from industry insiders, but Aleafia was one firm to praise the regulator for its foresight.
“These changes will alleviate product shortages and application backlogs, while spurring job creation in local communities as more completed facilities become operational,” said Aleafia chief executive Geoffrey Benic. He added that this move will help cut out the thriving black market by making the legal cannabis industry more competitive.
Benic’s views were echoed by his counterpart at GTEC Holdings, Norton Singhavon, who praised Health Canada for fostering the growth of the Canadian cannabis industry.
Aleafia also revealed that it has just completed its largest ever individual sale, worth $700,000. In the first 38 days of Q2, it brought in gross revenue of $1.2 million, so investors should expect significant sequential revenue growth when it next reveals its financials.
“In 2018, Aleafia Health laid the groundwork for a breakthrough 2019, and we have now begun to see the results of this work,” said Benic.
GTEC Holdings is a market awareness client of Capital 10X.
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