Gone are the days where cannabis of questionable quality was bought from less than savoury drug dealers in shadowy places. The modern cannabis industry is quickly evolving into a polished, corporatized and highly regulated American mainstay. In the ongoing pursuit of innovation and cost savings, a wide variety of ancillary businesses have cropped up to support this burgeoning industry. These companies offer everything from extraction as a service to assistance with attaining licensing. If one company could bring some or all of these activities under one umbrella, they stand to realize significant growth in market share and the revenues that come with it.
The California Cannabis Industry
After 20 years as the world’s largest medical marijuana market, California legalized cannabis for recreational use in November 2016. Since then, the Golden State has established a multi-billion dollar market, with a large variety of grow-houses, manufacturing facilities, and retail outlets springing up all over the state. Consumers spent over $5 billion at Californian dispensaries in 2017 and 2018 combined (approximately equal to the combined markets of Colorado, Washington, and Oregon), with the market expected to grow to nearly $6 billion annually by 2020.
Businesses operating in the state have had to deal with increasingly stringent regulations on growing standards, labeling, distribution, and marketing. Many companies have been unable to keep up with the rule changes, resulting in product shortages and hampering the growth of the industry. Various companies have entered the market to assist producers with bringing their goods to market most cost-effectively and within regulation. One such company is TransCanna Holdings Inc. (CSE: TCAN) (FSE: TH8) (the “Company”).
TransCanna Hit The Ground Running
Based in Vancouver, British Colombia, and operating in California, TransCanna is a cannabis firm that was founded in 2017 and has its goals set to create or acquire 15 premium brands within 24 months. The company is building a self-contained ecosystem which will allow it to handle all aspects from seed to sale. The company has spent the time since incorporating on acquiring the assets they will need to carry out their business plan.
The company’s balance sheet saw total assets grow from CAD$168,564 in 2017 to CAD$412,381 at the end of 2018. These assets include California-mandated Track and Trace (a software program used to track product along the supply chain) and 23 branding contracts with cannabis producers throughout California. Most recently, and not included on the balance sheet, is a 196,000 square foot production facility in central California.
This facility had a total purchase price of US$15 million, with US$8 million coming via cash raised from a recent private placement and the balance via a short-term 7% note. This note will either be paid back in 2020 or extended into 2021, depending on the cash needs of the company at that time.
The recently renovated facility (total of US$8 million in renovation paid by a third party) will allow TransCanna to showcase their strengths in branding and logistics. Designed to encompass the entirety of commercial cannabis production, the facility includes areas for “nursery, cultivation, manufacturing, extracting, bottling, remediation, and transportation & distribution”. Clients will have the option to have TransCanna assist them with all or none of the services the property will offer.
The company forecasts revenues from this facility to range from $180 million to $283 million, depending on market conditions. The bulk of these revenues ($160-$240 million) from this facility will come via “manufacturing”. Manufacturing refers to turning the cannabis plant, more specifically the oils derived therefrom, into consumer products like marijuana-infused foods and drinks, topical creams and concentrated oils used for vaping or sublingual dosing. The remaining revenues will come via a combination of extraction, distribution, and cannabis growing.
In addition to the turnkey manufacturing facility, the transaction included a 5.57-acre parcel of land, which the customer estimates to be large enough to accommodate a future 400,000 square foot cannabis growing facility. The company projects revenues from such a facility to range from $40 million to $80 million annually. In total, the purchase is expected to generate anywhere from $220 million to $363 million annually.
TransCanna’s management has moved forward rapidly with their plans of offering turnkey value-add services to Californian cannabis producers. As regulations continue to tighten, look for the company’s offerings to come in even stronger demand. With a market cap of just over $120 million, the company remains well below the valuations of other companies in the industry. It would behoove investors to follow along as revenues begin ramp up in the coming quarters.
For more information or to join TransCanna’s email list please visit the company’s website.
TransCanna Holdings, Inc. is a paid client of The Cannabis Investor.
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