Supreme Cannabis Expands Production & Distribution Footprint to Canada’s Largest Market

Investors in the cannabis industry have been inundated with major transactions, large expansions, and new product launches over the past year. While Canada’s market is projected to reach C$22.6 billion over the coming years, according to Deloitte, many licensed producers have never operated at the scale needed to serve the country’s recreational market—even the largest companies have only been around for a few years.

Growing, producing, and selling cannabis in a new highly-regulated market is challenging enough before considering the fact that these companies are expanding into new market verticals and geographies, as well as entering the brick-and-mortar retail business.

The Supreme Cannabis Company (TSXV: FIRE) (OTC: SPRWF) (FRA: 53S1) is unique as they have not tried to make headline splashing news—instead they’ve been working quietly behind-the-scenes to ensure their core business is a success and build a proprietary competitive advantage.

Prudently Scaling Up Production

Supreme Cannabis has been scaling up production without compromising its industry-leading quality. On July 11, the company announced that it received approval from Health Canada to commence cultivation on an additional 30,000 sq. ft. of flowering rooms at 7ACRES’ 342,000 sq. ft. facility located in Kincardine, Ontario, which will double its annual production run rate from 5,000 kg. to 10,000 kg. of dried cannabis per year.

“Since receiving its license just over 24 months ago, 7ACRES has demonstrated that it is one of the fastest scaling producers in the industry, having added more than 60,000 square feet of flowering capacity over this brief period,” said John Fowler, CEO of Supreme Cannabis. “With this capacity expansion, 7ACRES is positioned as a top producer and the leading recreational brand for adult consumers seeking a high-quality product.”

Management expects to complete production of the 342,000 sq. ft. 7ACRES facility by the end of this year and hit an annual production run rate of 50,000 kg. per year by the first half of 2019. The revenue growth from these expansion efforts have made it one of the fastest growing licensed producers in the industry, with revenue hitting more than C$2 million during the three month period ended March 31, 2018.

Expanding Distribution Footprint

Supreme Cannabis has been equally focused on building distribution channels for its growing production.

On July 11, the company announced that it entered into a memorandum of understanding with the British Columbia Liquor Distribution Board to supply recreational cannabis to British Columbia’s private cannabis retailers. Under the terms of the deal, 7ACRES will supply 553 kg. of dried cannabis over a 12-month period.

The new agreement marks the company’s third provincial distribution agreement, alongside Manitoba and Alberta. In each of these provinces, the company’s products are categorized as a leading premium brand. Management will provide updates on further provincial partners as over time, but plans to eventually provide its products from coast-to-coast, with the exception of Quebec.

In addition to these agreements, the company recently entered into an agreement with the Ontario Cannabis Store on August 20, 2018— this is a milestone for the company as the province is expected to be the nation’s largest retail market for recreational cannabis. Supreme Cannabis will become one of just 26 licensed producers that have secured the rights to supply cannabis to Ontario.

With the Ontario deal, Supreme Cannabis joins a select group of industry leaders who have secured supply agreements with at least 4 provinces at this time, including: Canopy Growth, Aurora Cannabis, Aphria, Tilray, Organigram, and Maricann. It is worth noting that Supreme Cannabis has secured more provincial supply deals than other notable industry companies Cronos Group and the Green Organic Dutchman.   

Looking Ahead

Supreme Cannabis has been very successful in tangibly growing its production and distribution footprint across Canada rather than simply announcing new plans and letters of intent. By building these strong roots, the company is well positioned to move into other areas, such as new product categories that are expected to become legal next year (e.g. edibles, concentrates, and drinks), when it makes sense to do so.

In addition to the recreational market, the company offers investors exposure to the medical market through its investment in Medigrow—a Lesotho cannabis oil producer. Lesotho has a culture that’s supportive of medical cannabis without the baggage that other jurisdictions have in the narco business. The commonwealth’s language, laws, and stability are all favorable, and several other licensed producers have followed suit in the region.

Finally, the company has been building outs its management team and advisory board to guide it as it executes on its plans. In particular, the company recently added the former President of Starbucks Canada to its board, which already includes veterans from the tobacco and alcohol beverage industries.

Investors may want to take a closer look at the stock given these many catalysts and its growth trajectory moving forward. Management has a proven track record of executing on their simple plan, they’ve shown how to prudently deploy capital, and they have a management team that has successfully navigated the industry. At the same time, their valuation is significantly lower than many peers that have hit ‘unicorn’ status.
For more information, visit the company’s website at www.supreme.ca.

Disclaimer

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About Ryan Allway

Mr. Allway has over a decade of experience in the financial markets as both a private investor and financial journalist. He has been actively involved in the cannabis industry since its inception, covering public and private companies.