Technical420 Deep Dive: Stem Holdings (STEM) (STMH)
2019 has been a banner year for the US cannabis industry and this is a market that we have been highly focused on.
During the last year, Stem Holdings (STEM.CN) (STMH) has been executing on a multi-state expansion and this is an opportunity that we have been closely watching. Although the company has significantly expanded its reach, the shares have been trading lower with the market and this is an opportunity that we want to highlight.
Focused on Strategic US Cannabis Markets
When Stem Holdings initially commenced operations, the company was only focused on the opportunity in Oregon and it has significantly advanced its fundamental story since then by expanding into California, Nevada, and Oklahoma. When it comes to expanding, Stem Holdings has a proven track record of success and we are favorable on the company’s ability to create value through accretive acquisitions in strategic cannabis markets.
When looking at the progression of Stem Holdings over the last year, you can see that the company is focused on building a significant footprint in strategic cannabis markets in the US and abroad. By initially focusing on markets on the west coast of the US, Stem Holdings has been gaining traction in some of the most exciting cannabis markets. We are favorable on the long-term growth prospects associated with the continued execution and believe that the market does not fully appreciate this.
A few months ago, Stem Holdings completed the acquisition of Western Coast Ventures, Inc. (WCV). This represented a transformational development due to WCV’s joint venture with ILCA Holdings, which has been issued a limited Conditional Use Permit for a Marijuana Production Facility (MPF) in San Diego. During the fourth quarter, Stem Holdings expects to commence production and we are bullish on this market due to the way the city has limited the number of licenses that will be issued.
During the last few months, there have been significantly more raids of unlicensed cannabis businesses operating throughout California. This is a trend that is expected to continue after CNBC published a report that exposed just how big the black market is and how bad this issue has become in California. Over the next year, we expect to see licensed California cannabis businesses benefit from the increased regulation and expect Stem Holdings to be a beneficiary of this trend.
Earlier this year, Nevada’s Department of Taxation approved Stem Holdings’ change of ownership application for four medical and recreational cultivation and production licenses held by YMY Ventures LLC. The approval represented a major milestone for the company since it was the final piece of the acquisition of 50% of YMY, an original Nevada cannabis licensee.
On an annual basis, Las Vegas attracts more than 42 million tourists and the cannabis industry has been a major beneficiary of this. Stem Holdings’ facility is located just a few miles off the Las Vegas strip and will be focused on producing organic cannabis. The focus on producing organic cannabis provides Stem Holdings with an important differentiator that should help when it comes to gaining shelf space and we find this to be an attractive aspect of the story.
Focused on Creating a Global Cannabis Brand
One of the most attractive aspects of the Stem Holdings story is related to the focus on bringing its portfolio of premium cannabis brands to new cannabis markets. With leverage to markets like California and Nevada, the company is focused on two of the most significant markets when it comes to building a brand. We believe that the cannabis consumer brands that can establish a multi-state footprint and develop consumer trust will be the best positioned for significant long-term growth. We believe that Stem Holdings has the ability to execute on a strategy that accomplishes this and find this to be significant.
California is the largest cannabis market in the world and Nevada is the best market for generating awareness. We are favorable on Stem Holdings’ leverage to these markets and believe that the focus on the west coast of the US will support future growth. Over the next year, we expect to see the company further increase its reach and is currently looking at opportunities in Massachusetts and Florida.
When looking at the cannabis opportunity in Nevada, there is a lot to be excited about. Las Vegas represents one of the world’s most significant recreational cannabis markets from a branding and revenue standpoint. Las Vegas provides cannabis companies with a great opportunity to bring their brand to the people and we find this to be significant as it relates to Stem Holdings. According to Arcview Market Research and BDS Analytics, Nevada is expected to be an $800 million market by 2022 and we are favorable on the company’s opportunity to penetrate this market.
A few months ago, we visited Stem Holdings’ Las Vegas operation and expect this facility to prove to be a significant growth driver in 2020. Once the facility is fully operational, we expect to see the company’s portfolio of brands perform well in this market and believe that the market underappreciates this aspect of the story. 2019 has been a banner year for the US cannabis company and we are favorable on the continued execution as it relates to the planned expansion. Stem Holdings has visible growth prospects and has been highly focused on penetrating burgeoning cannabis markets in the US and abroad.
Executing on the International Cannabis Opportunity
In late May, Stem Holdings recorded a significant development and was awarded a research license to cultivate cannabis in the Caribbean country of St. Vincent & the Grenadines (SVG). Although the company has been primarily focused on the burgeoning cannabis opportunity in the US, it has been executing on the international cannabis opportunity and this is the second international market that Stem Holdings has leverage to.
When it comes to the opportunity in SVG, the research will be conducted in collaboration with and under the supervision of the Bureau of Standards and the Cannabis Research and Development Unit within the Ministry of Agriculture Forestry, Fisheries, Rural Transformation, Industry, and Labor. The company will have to construct a modern research facility for the cultivation of a variety of stains of cannabis that are high in CBD and low in THC.
In late 2018, SVG passed legislation to decriminalize cannabis for medical and scientific research purposes. This is an emerging cannabis market and we are bullish on Stem Holdings’ ability to gain a first mover advantage on this opportunity. The research license allows for the unlimited cultivation of both CBD Hemp and cannabis and the company’s facilities are expected to be operational by the first calendar quarter of 2020.
Once this facility is operational, it will only be producing and distributing Stem Holdings branded products and this could prove to be a significant growth driver. One of the reasons we are favorable on this location is due to the ability to expand to other emerging cannabis markets in Latin America. Over the next year, we expect to receive several updates about this initiative, and we will monitor how the team is able to advance this project.
In early April, Stem Holdings completed the acquisition of South African Ventures, Inc. (SAV) and we consider this to be a significant long-term growth opportunity. One of the reasons why we are excited about this asset is due to the joint venture that SAV has with Profile Solutions, Inc. (PSIQ). The joint venture has received preliminary approval to become the only licensed growing farm and processing plant for medical cannabis and industrial hemp in The Kingdom of eSwatini for at least 10 years. Another reason why we are favorable on this acquisition is due to SAV having a working capital surplus of approx. $11 million.
Upon issuance of related permits and the completion of construction, the joint venture will operate an advanced hemp and medical cannabis manufacturing facility to grow and cultivate cannabis in accordance with strict Good Manufacturing Practices (GMP) global health standards. The joint venture will also distribute hemp and medical cannabis within eSwatini, be the exclusive exporter within eSwatini for hemp and medical cannabis worldwide, operate a medical cannabis research and development lab, and build a training facility to create jobs for locals.
The facility will include a state-of-the-art research and development lab that is focused on genetic propagation and will be able to produce more than 12,000 kilograms of premium cannabis on annual basis. Unlike many other cannabis businesses and opportunities in this emerging market, the joint venture has already secured access to water rights, electricity, and banking for this project. We are excited about this and the company expects to start producing in the fourth quarter of 2019.
An Opportunity that is Flying Under the Radar
During the last quarter, Stem Holdings has been under considerable pressure and has been trading lower with the cannabis sector. With leverage to strategic markets like California and Nevada, the company is focused on two of the most exciting cannabis markets in the world and we are favorable on the focus on emerging international opportunities.
Over the next year, we expect to see the fundamental story considerably improve and this is something that we are excited about. We are bullish on Stem Holdings due to the number of potential catalysts for growth as well as the current valuation. When compared to peers with similar assets and a similar scale, the company has an attractive valuation and this we are favorable on the risk-reward profile.
If you want to learn more about how Stem Holdings continues to execute on the US and the international cannabis opportunity, please reach out to firstname.lastname@example.org
Pursuant to an agreement between StoneBridge Partners LLC and Stem Holdings (STEM) we have been hired for a period of 180 days beginning February 1, 2019 and ending August 1, 2019 to publicly disseminate information about (STEM) including on the Website and other media including Facebook and Twitter. We are being paid $7,500 per month (STEM) for or were paid “ZERO” shares of unrestricted or restricted common shares. We own zero shares of (STEM), which we purchased in the open market. We plan to sell the “ZERO” shares of (STEM) that we hold during the time the Website and/or Facebook and Twitter Information recommends that investors or visitors to the website purchase without further notice to you. We may buy or sell additional shares of (STEM) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.
Published at Mon, 05 Aug 2019 11:44:17 +0000