December 6, 2021 -- InvestorsHub NewsWire -- NetworkNewsWire
Editorial Coverage: Even as the cannabis market continues
expanding, pricing for wholesale cannabis has been under protracted
pressure from oversupply and price cuts. Make no mistake — the
cannabis market is still robust with large upside, and survivors of
this supply side shake-out should secure ever-greater market share.
The pressures may be most prevalent in California, the world’s
biggest cannabis market, as light-deprivation crops reach market in
2021 and the potential for Type 5 cultivation licenses allowing for
massive outdoor-growing facilities could be issued in California by
2023. To survive and thrive, companies will need to be nimble,
diversify assets across the value chain and generate revenues from
multiple venues. That’s preaching to the choir for
Los-Angeles-based Cannabis Strategic Ventures Inc.
(OTC: NUGS)
(Profile). One of California’s publicly traded
cannabis cultivators, NUGS has been actively diversifying into
integrated operations complete with high-profile retail locations
and new indoor grow facilities. NUGS views the shake-out as
opportunity and fully expects to capture increased market share as
the company continues to diversify. Throughout the last
decade, as the “green rush” has swept across the globe, the wheat
has been separated from the chaff, leaving strong companies
— such as Canopy Growth (NASDAQ:
CGC), Curaleaf Holdings (OTCQX:
CURLF), Green Thumb Industries
(OTCQX:
GTBIF) and Trulieve Cannabis (OTCQX:
TCNNF) — still standing as they take necessary
steps to secure market share going forward.
- Diversifying from its highly regarded outdoor grow facility,
NUGS is adding high-margin indoor cultivation and high-profile
retail stores
- NUGS earlier acquired four comprehensive cannabis licenses in
Los Angeles
- The company intends to develop and acquire indoor grow
facilities capable of producing 22,000 pounds of premium, exotic
cannabis flowers per annum
Click here to view the custom infographic of
the Cannabis Strategic Ventures
Inc. editorial.
Cannabis Price Pressures
According to Cannabis Benchmark(R)’s U.S.
Cannabis Spot Index, the average price of a pound of cannabis
declined around 17% over the last year. Nowhere has that been more
noticeable than in California. It’s difficult to exactly discern
just how big the California market is, but published information
shows 2021 tracking for more than $5
billion in taxable sales for the state.
In truth, however, the question is not about market size as much
as it is about survivability for small companies, which could be
heading for stiff competition come Jan. 1, 2023. In 2016, the
state’s proposition 64 eliminated cannabis prohibition, with an
acreage cap in effect until 2018. Eliminating the cap allowed
stacked licensing and bigger farms, and the fear is that type 5
licenses becoming effective at the start of 2023 could lead to
unlimited cultivation that will be a death knell for small
growers.
From its headquarters in Los Angeles, Cannabis
Strategic Ventures (OTC: NUGS) is starting to
leverage deals forged pre-COVID-19 pandemic to position for
pressures on wholesale cannabis prices. Management is leveraging
its collective experience in operational and financial strategic
partnerships to ensure that NUGS both survives and thrives during
this supply-side disruption.
More precisely, Cannabis Strategic Ventures has expanded
opportunities in what many see as a downturn by opening
dispensaries and shifting focus on higher-margin indoor cultivation
that commands higher prices. As NUGS continues a high-margin growth
strategy, the company expects to simultaneously increase brand
recognition and market share.
The New Retail Footprint
In 2019, Cannabis Strategic Ventures entered into an
agreement where the company gave up limited equity stake
in exchange for up to $8 million in financing and the transfer of
four cannabis licenses. The licenses were issued by the city of Los
Angeles and the state of California for the retail sale,
cultivation, distribution and manufacturing of cannabis
products.
Then the COVID-19 pandemic hit, which delayed the approval of
the transfer of the licenses by the city and state until Aug. 9,
2021. With licenses now in hand, Cannabis Strategic Ventures is
moving with purpose to execute a farm-to-sale model. This strategy
means eliminating middlemen that gobble up margin, passing savings
on to consumers and adding to corporate coffers.
First up for NUGS is the grand opening of its flagship retail
cannabis dispensary under the MDRN (Modern) Tree brand. The store
will showcase cannabis flower produced at the company’s NUGS Farm
North cultivation site.
Expanding Indoor Cultivation
The L.A. licenses represent multiple vertical opportunities for
NUGS, inclusive of substantial expansion of indoor grow operations
to complement its NUGS Farm North property. The plan is to
establish new indoor cultivation facilities in Los Angeles and
Sacramento to grow premium exotic cannabis flower, thus distancing
NUGS from basic competition that has flooded the markets.
Cannabis Strategic Ventures has also inked a
Memorandum of Understanding (“MOU”) with Devine Solutions
Inc., a California corporation, relating to the proposed
acquisition by NUGS of an indoor cannabis cultivation facility in
Sacramento, California. According to the terms of the MOU, NUGS
intends to initially purchase 10% of the facility for $1.5 million,
with an option to purchase an additional 41% of the facility for a
controlling stake at the same $15 million valuation.
Capacity and Profitability
NUGS becomes a vertically integrated cannabis company with the
downtown L.A. licenses, new indoor grow facilities in Los Angeles,
a retail brand, Sacramento assets and existing NUGS outdoor
greenhouse. The company is effectively covering all the bases of
mass markets and premium artisanal consumers, adding a new
demographic to its revenue stream.
NUGS isn’t planning to add just a little bit of capacity; the
facilities represent a major expansion. For the L.A. facility,
management foresees up to 1,200 grow lights, projected to produce
two to three pounds of premium exotic cannabis flower per light per
harvest across an estimated 5.75 harvests per year, suggesting an
upside potential for total production capacity of more
than 15,000
pounds of premium exotic cannabis flower per year.
With the addition of approximately 15,000 square feet and an
estimated 500 grow lights, the Sacramento facility will have
capacity for 7,000 pounds of premium cannabis flower annually;
22,000 pounds even at a further price depreciation to $1,500 for
indoor flow equates to $33 million.
NUGS CEO Simon Yu succinctly summarized the recent developments
in saying, “We have already amassed years of experience refining
our cultivation methods and strains in an outdoor framework with
our NUGS Farm North site. Adding a top-tier indoor cultivation
operation stands to help us further build upon that success and
drive more volume in the premium flower market, which has powerful
implications given our recent expansion into the dispensary
marketplace with our MDRN Tree downtown L.A. dispensary
location.”
Success Favors the Strong and Vertically
Integrated
Pricing pressures aren’t unique to California. As other markets
develop and become saturated, the pattern is almost certainly to
repeat, which will play into the hands of strong cultivators and
those with efficient, integrated models.
Canopy Growth (NASDAQ: CGC) is a
world-leading diversified cannabis and cannabinoid-based consumer
product company. The
company has also entered into the health and wellness
consumer space in key markets including Canada, the United States
and Europe through BioSteel sports nutrition and This Works skin
and sleep solutions. Canopy Growth has also introduced additional
federally permissible CBD products to the U.S. through its First
& Free and Martha Stewart CBD brands. In addition, the company
has an established partnership with Fortune 500 alcohol leader
Constellation Brands.
Curaleaf Holdings (OTCQX:
CURLF) is an international provider of consumer
CBD and hemp products headquartered in Wakefield, Massachusetts.
The company has a presence in 23 states, and owns and operates 112
dispensaries, 25 cultivation sites, and 30 processing sites with a
focus on highly populated, limited license states. Curaleaf also
has a footing in the beverage space, recently signing an
important distribution agreement with Southern Glazer’s
Wine & Spirits, the world’s largest distributor of beverage
alcohol, that will bring Curaleaf’s lineup of products from its
eponymous Hemp and Select CBD product lines into Southern Glazer’s
distribution network.
Green Thumb Industries (OTCQX:
GTBIF) is a national cannabis consumer packaged
goods company and retailer that manufactures and distributes a
portfolio of branded cannabis products including Beboe, Dogwalkers,
Dr. Solomon’s, Good Green, incredibles and Rythm. The
company also owns and operates rapidly growing national
retail cannabis stores called Rise. Green Thumb has 16
manufacturing facilities, 66 open retail locations and operations
across 14 U.S. markets. Earlier this month, Green
Thumb announced
financial results from Q3, showing that revenue increased 5.3%
sequentially and 48.7% year-over-year to $233.7 million.
Trulieve Cannabis (OTCQX:
TCNNF) is an industry-leading, vertically
integrated cannabis company and multistate operator in the United
States, operating in 11 states, with leading market positions in
Arizona, Florida and Pennsylvania. Trulieve is poised for accelerated growth and
expansion, building scale in retail and distribution in new and
existing markets through its hub strategy. The company recently
announced the launch of
TruTonic, a brand-new drink powder that is the first of its
kind in Florida.
Diversification is mandatory to keep up with the constantly
shifting and evolving cannabis markets that are still only in their
nascency. Supply surpluses and shortages are bound to occur as the
cannabis markets find their footing and competition intensifies. In
all probability, cannabis company survivors and thrivers will be
diversified and vertically integrated to capture share and carve a
path to ever greater profitability.
For more information about Cannabis Strategic
Ventures Inc. (OTC: NUGS), please
visit Cannabis
Strategic Ventures Inc.
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