As Cannabis Sales Are Set To Start – GTEC Holdings Is Cornering The Most Profitable Market

Palisade Research July 16, 2018
Category: Research

The Canadian marijuana market continue its torrid pace – but if it follows the path of breweries it’s the niche craft market where the money will be made.

A Brief Primer on the Craft Marijuana Market

There is no denying that the marijuana market in Canada is going to be big. . .

By 2020, we believe that the market for legal cannabis use will hit $7.5 billion in sales.

To put this figure into perspective – the Canadian brewery industry currently has sales of $9.2 billion.

The breweries industry is looked at as mature, which means major M&A activity and slow growth. For instance, sales are expected to grow at an annualized rate of only 2.2% over the decade.

The silver lining in the breweries industry has been the strong growth of craft beer – distributed by the smaller, independent shops that focus in premium products.

You know what I’m talking about – those fancy beers you see in the store that are expensive compared to the usual Budweiser and Coors, but people love. In fact, craft beer is singlehandedly the reason why the breweries experienced higher than average growth the past five years.

In Canada, craft accounts for only 6% of total beer volume sold – or C$378 million – while in the United States it accounts for 23.4% of sales – which is US$26 billion. We believe craft beer has a lot room to grow in Canada – and will continue with its torrid pace. Especially because as in terms of per capital consumption of beer, it’s the highest among 18 to 34-year old’s – the generation that prides themselves on individuality and small, niche brands.

The early stages of the recreational marijuana market have quickly become a race to the cheapest and largest producers.

And within this market comes an untapped subsector of premium marijuana products. . .

Thus, as the demographics of marijuana mirror the breweries industry – we believe the craft marijuana market has significant upside. It’s poised to outperform medical marijuana and become the top performer for within recreational usage.

The Extreme Growth of Recreational Marijuana

If Canada were to follow the trajectory of Colorado, marijuana sales will see an average annual growth rate of 32%. . .

The strongest of the growth will come from the recreational marijuana market – which in the same period grew by a whopping average annual rate of 55%.

Medical marijuana refers to the use of marijuana to alleviate the symptoms of certain diseases or conditions – especially pain management and as an appetite stimulant.

Whereas recreational marijuana is the consumption of marijuana for leisure and no medical justification – to simply ‘feel good’. . .

To showcase the significant demand for ‘feeling good’ – when Washington legalized marijuana, sales saw first year growth of 202% – followed by second year growth of 75%. . .

And in Canada, the recreational use of cannabis was legalized on June 21, 2018, and come into effect as of October 17, 2018.

Like Washington and Colorado – we foresee similar growth trajectories for marijuana sales.

“Here Comes the Millennials”

With the legalization of marijuana use finally happening – we foresee sales of cannabis to reach over C$7.5 billion by 2020. . .

While the marijuana sector is far from mature, the demographics of marijuana users will see the trending support for the local, small, and independent growers. . .

And we believe at least 25% of our 2020 marijuana sales estimates will be derived from the craft marijuana market – that’s C$1.9 billion. . .

With all this said, the reasons to invest in craft marijuana are very compelling – and there is only one company that is specializing in this niche craft market. . .

GTEC Holdings Ltd (CVE:GTEC) – A Pureplay Craft Marijuana

Share Price: C$0.93

Shares Outstanding: 85.7M

Market Capitalization: C$79.7M

Cash: C$13.9M

Total Liabilities: C$5.0M

 

GTEC Holdings is a venture capital firm whose mandate is to identify and consolidate licensed producers of craft cannabis brands and products. GTEC plans on monopolizing this niche market and become the go-to purveyor of the retail market in Canada – and internationally.

GTEC was founded by Norton Singhavon and Michael Blady – two great marijuana visionaries and entrepreneurs. . .

Norton Singhavon, Chairman and CEO, has extensive experience in Canada’s cannabis sector, being involved in some of the largest acquisitions, consolidations, and start-ups. Norton’s deployed over C$22 million into the cannabis sector and was involved with another C$50 million of M&A. He’s an advisor to – and significant investor – in Invictus MD Strategies Corp (CVE:GENE).

Next is Michael Blady – a venture capitalist and that’s been involved in the start-up and management of numerous public companies. In his recent role as Director and Senior Executive of Invictus, Michael helped oversee the acquisition, management and growth of a diverse portfolio of cannabis-centric businesses owned by Invictus.

These businesses include manufacturing hydroponic equipment, laboratory testing and services, cultivation, media, marketing, and biopharmaceutical applications. Michael’s been directly involved in raising more than C$65 million of capital in the cannabis sector.

Norton, Michael, and the GTEC management team all have the track record of building multiple successful cannabis companies. Not to mention, they’ve put their money where their mouth is, investing $6 million of their own capital of the $16.24 raised in seed financing.

GTEC Holdings currently holds interests in. . .

  1. Alberta Craft Cannabis
  2. GreenTec Bio-Pharmaceuticals
  3. Zen Labs
  4. Falcon Ridge
  5. Tumbleweed Farms
  6. and Grey Bruce Farms

These six assets alone have the production capacity to produce 50,000 kilograms per year by 2020, with over 23 million square feet of expansion capabilities. . .

Alberta Craft Cannabis, Edmonton, AB

Alberta Craft Cannabis (ACC) is a licenced producer, and one of the 105 existing licenses by Health Canada under the ACMPR.

ACC was the first cultivator in Edmonton, even before Aurora Cannabis Inc. ACC has a 14,000 square foot facility that produces 1,300 kilograms annually.

GTEC’s currently retrofitting the facility to run more efficiently and a secondary site location application is currently under review. Test crops were submitted to Health Canada – and GTEC aims to have their sales license by October – just in time for full recreational use all over Canada.

GreenTec Bio-Pharmaceuticals, Kelowna, BC

GreenTec Bio-Pharmaceuticals is GTEC’s flagship subsidiary that’s located in Kelowna, British Columbia. They have a 80,000 square foot facility currently under construction, with the expansion capability for a 2nd site located on 160 acres in the North Okanagan. The first phase of GreenTec is to produce 1,500 kilograms annually – with the second phase expansion planned to break ground in Q4 2018.

Zen Labs, Kelowna, BC

Zen Labs is located just down the street from GreenTec’s operation. The facility is a fully operating, environmental-and-microbial, analytical testing lab. But is currently being renovated and upgraded to store and test cannabis products.

Zen Labs 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.

Zen Labs will act as the research and development arm of GTEC for their new craft products. . .

 

Falcon Ridge, Kelowna, BC

 

Falcon Ridge is a certified organic farm located in Kelowna, B.C. They currently specialize in growing Echinacea Angustifolia and producing organic echinacea products – following strict GMP and HACCP protocols to ensure product safety.

GTEC plans on building a 10,000 square foot production facility on the property, which will be capable of producing 1,000 kilograms annually of organically cultivated cannabis.

This phase-one is a late stage applicant – and Falcon Ridge will have the ability expand as it operates 11 acres of land.

Tumbleweed Farms, Chase, BC

Tumbleweed Farms is a 10,000 square foot boutique craft cannabis ACMPR production facility located in Chase, BC which sits on 22 acres.

Phase-one of Tumbleweed is a late stage applicant, with expansion capabilities of one million square feet – with the option to go to 8 million square feet.

Phase-one will produce 1,000 kilograms annually. . .

Grey Bruce Farms, Kincardine, ON

Grey Bruce Farms is a 30,000 square foot boutique craft cannabis ACMPR production facility located in Grey Bruce County, Ontario that also sits on 6 acres.

Phase-one of Grey Bruce is a late stage applicant, with expansion capabilities of 500,000 square feet.

Phase-one will produce 1,500 kilograms annually. . .

Conclusion: GTEC Holdings – An Undervalued Marijuana Play with Incredible Upside and Leverage to a Recreational Cannabis Market

There is no doubting that the craft investment angle is very compelling. Even at worst-case estimates it still has significant upside from where it is today.

But GTEC is also incredibly undervalued for what they own in terms of marijuana capacity. . .

 

Compared to their peers – GTEC is significantly undervalued.

In fact, if GTEC was trading at just the ‘average’ – it would be a $8.50 stock. That’s over 1,000% from today – and that’s not even including ramp-up capacity at their facilities. . .

Top-down or bottom-up – no matter how you look at it, GTEC is the most compelling marijuana stock available to own in a market that has only upside from here. . .

 

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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