With the cannabis market heating up again, new investors to the sector are often at the crossroads asking themselves, should I invest in U.S. cannabis companies or Canadian ones? The Cannabis Act (C-45) of June, 2018, paved the way to the legalization of cannabis in Canada on October 17, 2018, but in the states discussions are starting to brew in Congress to present a bill to fully legalize marijuana on a federal level. Speculative investors are left with the complex decision of where to place their bets within the crowded marijuana space. If you can’t make up your mind, then how about one that is the best of both worlds, but first, let’s do a deep dive into the sector.
The Marijuana Sector
The marijuana industry is comprised of a wide assortment of companies that are engaged in the research, development, distribution, and sale of medical and recreational marijuana. Cannabis has begun to gain wider acceptance and has been legalized in a growing number of nations, states, and other jurisdictions for recreational, medicinal, and other uses. Some of the biggest companies in the marijuana industry include Canopy Growth Corp. (CGC), Cronos Group Inc. (CRON), and Tilray Inc. (TLRY). Many big marijuana companies continue to post sizable net losses as they continue their build out of equipment and grow facilities in order to speed up their revenue growth. The big boys know that the revenues are a key ingredient of their land grab strategy, and fortunately for them, revenues have remained strong despite the pandemic-spurred economic downturn. This “Best of Both Worlds” company that we are unveiling is actually at the point of profitability.
The enigma in the marijuana sector is that if any segment of your business deals with marijuana, no matter how inconsequential it is, then the entire company is typecast as either a cannabis stock, pot stock, weed stock, or marijuana stock. Based on this mindset, the space appears to be crowded and almost too complex for the average investor to grasp. There are too many factors to consider, and adding the U.S. versus Canada choice complicates the decision even more. Since Canada represent legalized marijuana, many investors tend to gauge these stocks based on actual earnings and growth. The U.S. companies have an element of speculation, due to the potential national legalization. This would brand U.S. cannabis stocks as a “ground floor” or earlier in the game type opportunity versus its Canadian counterparts.
In order to get classified as a cannabis stock, business can do anything from growing and wholesaling, lab work, CBD oils to isolate, retail shops, medical dispensaries, seeds, clones, edibles, real estate, lighting, soil and more. When there are so many choices it is virtually impossible to compare investments?
A key question that investors ask in a crowded sector is …what makes this company different from its competition? Normally it’s a leader in its subcategory or it’s unique. The stock that represent the best of both worlds is very unique because it has a footprint growing by leaps and bounds in Canada, but it also has a U.S. based businesses set to surpass its Canadian growth within the United States, giving investors who are unsure where to invest, the Best of Both Worlds.
Legalization in the U.S.
Pot stocks have thrived in 2021 as Democrats’ control of the government boosts the odds of legalization. President Joe Biden indicated during his campaign he would move to decriminalize the drug. Democrats in Congress have echoed such calls and taken additional steps, pushing for the full legalization of cannabis in the US.
The renewed effort to reschedule marijuana has been a major boon for pot producers. While several states have either decriminalized or fully legalized the drug, a change of the federal drug law would open up the rest of the US and rapidly expand the marijuana market.
While 36 states allow “medicinal” cannabis or marijuana, only 14 states currently allow recreational sales in which marijuana is fully legal and these numbers have been growing year after year in the last decade as research and science have proven therapeutic values and an additional means for taxation and income on a state by state level.
The MORE Act has paved the way for possible legalization. The Marijuana Opportunity Reinvestment and Expungement Act is a proposed piece of U.S. federal legislation that would deschedule cannabis from the Controlled Substances Act and enact various criminal and social justice reforms related to cannabis, including the expungement of prior convictions. Introduced in 2019, the U.S. House of Representatives passed the bill on December 4, 2020, marking the first time a chamber of Congress approved legislation to end federal marijuana prohibition.
Several industry CEOs have incorporated U.S. marijuana legalization into their near-term forecasts. Canopy CEO David Klein said in a Tuesday earnings call he expects Biden to decriminalize the drug and allow the firm to enter the U.S. market in 2021. Tilray CEO Brendan Kennedy recently told Bloomberg TV that federal legalization could be achieved in the next 12 to 18 months. This speculation is what is fueling the industry and we found a great one that has roots in Canada and is an emerging player in the United States.
A Marijuana Company that is the “Best of Both Worlds”
CordovaCann (CSE: CDVA) (OTCQB: LVRLF) with its unique diversified footprints in both the United States and Canada, truly offers investors the best of both worlds. When it comes to the complex decision of what to invest in, this company is showing strong growth adding retail stores across Canada while building a grow facility business in both Oregon and Washington state.
The U.S. side consists of Cannabilt Farms in Damascus, Oregon. The mall indoor farm, formerly known as Synergy Farms, focuses on producing the highest quality flower for consumers to enjoy. CordovaCann announced the granting of the grow license November 23, 2020. The License allows LVRLF to cultivate cannabis on the Clackamas County, Oregon facility it purchased back on June 21, 2019. This facility sits on 6 acres of real estate and will accommodate the maximum 10,000 square feet of indoor cultivation canopy that is permitted under the License. Cordova acquired this facility for US $1,045,000 and has invested over US $1,400,000 in expansion capital to advance this facility.
In Washington state, CordovaCann executed a non-binding letter of intent (LOI) to purchase Extraction Technologies, LLC., which provides cannabis extraction services to multiple cannabis licensed processors within the state. This will enable Cordova to provide manufactured cannabis products on both a white label and branded basis throughout the state of Washington.
Extraction Tech, headquartered in Bremerton, Washington, manufactures a variety of cannabis derivative products via tolling agreements and white label manufacturing contracts. The two-year-old business is expanding its customer base and product offerings, and can be an integral part of Cordova’s growth strategy in the United States. We are assuming the company is close to closing this deal which will solidify its non-retail cannabis business in 2 states on top of its flourishing Canadian retail.
The Canadian Side
On the flip side, CordovaCann is really blossoming in Canada, as their retail business model of opening Star Buds branded stores located in sparsely populated areas where they are the only shop in town, versus a densely populated area where they are in direct competition with many cannabis retailers within a few miles radius. So far, the first 5 Star Buds stores are performing well and generated revenue of $1,066,291 in the month of December with a gross margin of 35.1%. This equates to a run rate of over $12.9 million in annual gross revenues. The 2 new stores opened during December are already contributing nicely and grew revenues week-over-week during the month. Cordova continues to expand its retail footprint and has plans to open additional Star Buds cannabis retail stores in Ontario, Manitoba, Alberta and British Columbia in the coming months.
“We are thrilled to have received our approval to operate retail stores in Alberta as this allows Cordova to quickly double its store base in the coming months…” – Taz Turner, CordovaCann Chairman and CEO
The company has goals to open up as many as 50 retail stores in the near future using the excess capital from their current stores to continue the expansion of additional Star Buds. This business model will put investors at ease, as management is not seeking the “dilute or give away equity” method to finance its growth, thus keeping its share structure in check.
Final Thoughts
CordovaCann truly gives investors broad exposure within the cannabis market. Shareholders in the company, are basically invested in a grower, an extractor, and a retailer in not 1 but 2 countries (U.S. and Canada). In the crowded cannabis space, where investors often look for “What is unique” about this one, CDVA/LVRLF stands out in our eyes as truly the best of both worlds. As far as upcoming catalysts, investors can look forward to CordovaCann opening more retail stores across Canada and increasing both revenue and EBITA, along with the closing of their Washington extraction deal. They recently added social media accounts on both Facebook and Twitter, and CEO Taz Turner has been doing podcasts and CEO interviews to assist in bringing awareness to his emerging cannabis company. For more on Cordova, visit https://cordovacann.com/.
