GTEC Holdings Ltd (TSX-V:GTEC) is Cornering the Craft Marijuana Market

Palisade Research October 18, 2018
Category: Research

Share Price: C$1.06

Shares Outstanding: 85.7M

Market Capitalization: C$90.8M

Cash: C$13.9M

Total Liabilities: C$5.0M

 

It’s official – marijuana’s fully legal in Canada – and GTEC Holdings Ltd (TSX-V:GTEC) remains our one and only cannabis stock in our portfolio.

As of now – GTEC remains significantly undervalued – and the craft investment angle makes GTEC standout from the hoard of marijuana companies now in the space.

We originally wrote up GTEC in early July (read here). And since then, the company’s progressed rapidly via their vertical integration efforts.

 

Continued Vertical Integration

 

 

GTEC’s created – and trademarked – a portfolio of six craft cannabis brands.

These brands will be used to market premium and quality cannabis products – with each targeting its own unique market.

Spectre Labs – GTEC’s cannabis oil extraction facility based in Kelowna, BC – was acquired to serve as a goods manufacturing facility with extraction, formulation, compounding, and export capabilities.

The facility’s being used to support GTEC’s licensed producers – and the global medical market.

Spectre Labs’ acceptance of application for a controlled drugs and substances dealer’s licence was received by Health Canada on July 7, 2018 and – soon-after – accepted for review on July 17, 2018.

GTEC’s now waiting on approval, which takes 180 days (roughly 90 days have past since then). . .

Upon approval of phase-one, the facility will then be capable of producing up to 24,500 grams of cannabis oil per day (equal to more than 8,500 kilograms per annum). And will have the capacity to increase production through future phased-development.

GTEC owns 100% of Alberta Craft Cannabis – which owns a fully built and work-ready 14,000 square foot facility that’s capable of producing 1300 kg of high-quality indoor craft cannabis per year.

Alberta Craft Cannabis has completed its first harvest and has notified Health Canada. The company’s now awaiting a sales licence inspection – which will be completed within the expected timeline.

GTEC also owns 25% of Cannabis Cowboy – a privately owned recreational cannabis and accessories retailer.

Cannabis Cowboy’s received 10 development permits from their respective municipalities in Alberta – which include locations in Calgary, Red Deer and Lethbridge.

Cannabis Cowboy expects to have 11 retail locations open and working by Q4/2018 – with an extra 14 locations opening in Q1/2019. . .

 

Last but not least is GTEC’s Zen labs – a fully operational, environmental-and-microbial, analytical testing lab – which will act as the research and development (R&D) arm of GTEC for their new craft products.

When we began coverage of GTEC, Zen Labs had only just received their Dealer’s License from Health Canada. This now authorizes them to perform analytical testing on cannabis and specific cannabinoids.

This license will play an integral role in the vertical integration of GTEC – giving them greater control of their production supply chain. . .

GTEC now has received approval from Health Canada to expand the scope of their dealer license to include the authorization to process cannabis flower into cannabis oil.

This is very important as the interest from global beverage companies has surged over the recent months – as seen with global alcohol giant, Constellation Brands, investing $5 billion in Canopy Growth Corp. – and Coca-Cola’s continued talks with Aurora Cannabis Inc. to develop cannabis-infused beverages.

Thus, this part of the market now has huge upside as the major beverage companies get involved. Expect GTEC to greatly benefit from all this.

 

Securing Pot Supply Deals

GTEC has signed a cannabis supply agreement with Namaste Technologies Inc. – where Namaste’s subsidiary, Cannmart Inc., will buy cannabis flower and oil from GTEC for resale on Cannmart’s on-line platform.

GTEC’s made it clear that they’re actively pursuing long-term supply agreements with licensed producers and diversifying their sales mix.

This approach will support GTEC by bringing more production capacity on-line throughout 2018 and 2019. . .

GTEC’s also signed an agreement to become the exclusive cannabis supplier to Pack4U Holdings – a national pharmacy distributor.

Pack4U Holdings provides pharmacies with access to medical cannabis in oral dosage form. This relationship is vital in acquiring medicinal patients and will also give GTEC access to a rapidly growing pharmacy network.

 

Moving Forward

GTEC Holdings is up 15% from our initial recommendation.

While weed stocks as a whole have declined upon legalization – which was expected – we expect GTEC to increase in value as it shows the market their continued monopolization of the craft cannabis market.

We view GTEC as an asymmetric opportunity (low risk – huge upside).

This is only GTEC’s beginning and will look very attractive to the majors as they look for ways for continued growth.

 

Palisade Global Investments Limited holds shares of GTEC Holdings. We receive either monetary or securities compensation for our services. We stand to benefit from any volume this write-up may generate. The information contained in such write-ups is not intended as individual investment advice and is not designed to meet your personal financial situation. Information contained in this report’s from sources we believe to be reliable, but its accuracy cannot be guaranteed. The opinions expressed in this report are those of Palisade Global Investments and are subject to change without notice. The information in this report may become outdated and there is no obligation to update any such information. Do your own due diligence.

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