Supreme Cannabis Focused on Disciplined Deployment of Capital

The cannabis industry has boomed in recent years supported by the access to inexpensive capital, which has stemmed from a voracious investor appetite for cannabis exposure and the prospects of outsized returns. In turn, many licensed producers have quickly deployed any raised capital to feed the investor frenzy and the demand for growth prospects and transactions without necessarily looking at the long-run and the need to maximize return on capital.

There are a few exceptions to this, and the Supreme Cannabis Co. (TSX-V: FIRE) (OTCQX: SPRWF) is an issuer that has taken a disciplined approach with a focus on maximizing shareholder value over the long-run by ensuring prudent capital management and allocation.

Utilizing Product Experts in a Segmenting Market

A recent clear example of Supreme’s strategy can be found in its approach to cannabis extract production. Cannabis oils have had a significant share of the medical cannabis market, according to Health Canada. As such, it is not surprising that many licensed producers have invested significant capital in building out large extraction facilities to produce cannabis oils. Dedicating capital to this function is a calculated risk with a rapidly evolving market and international opportunities on the horizon that might require this capital.        

Supreme Cannabis has generally taken a contrarian view in its approach to the market. In the case of domestic cannabis oil extraction, Supreme Cannabis has not deployed capital to build domestic oil facilities. Instead, the company has operated on the thesis that as the cannabis market evolved it would naturally segment, and dedicated product experts would be established. This is the same trend the company has observed in mature US markets.  

Supreme’s thesis played out correctly as dedicated extraction companies such as MediPharm Labs Corp. (TSX-V: LABS) and Neptune Wellness Solutions Inc. (TSX: NEPT) (NASDAQ: NEPT) have come to market. The company recently signed a deal with MediPharm to produce Supreme’s first line of cannabis oils. Supreme will provide an initial 1,000 kilograms of dried cannabis flower that will be converted into approximately 200,000 40ml tinctures in the first year. The agreement runs for three years, and the initial amounts constitute minimum annual production levels which can be increased as needed. Canopy Growth (TSX: WEED) (NYSE: CGC) also has taken advantage of these experts – supplementing its extraction capabilities with an agreement with Neptune.

This agreement provides Supreme with the same cannabis oil market exposure as its peers with none of the capital costs and associated risks – allowing the company to deploy capital in other opportunities.   

Supreme Cannabis Becomes Sixth Largest Canadian LP by Revenues

Supreme Cannabis Co.’s revenue rose 229 percent to $5.14 million during its first quarter of fiscal 2019 (calendar Q3). These results are driven by a growing number of supply agreements with other licensed producers and deals with six provinces to supply recreational cannabis to consumers.

At an annual revenue run rate of $20.6M, these results rank Supreme sixth among the Canadian LPs: 1) Aurora Cannabis (TSX:ACB) (NYSE:ACB) has a revenue run rate of $118M, 2) Canopy Growth at $93M, 3) Aphria (TSX:APHA) (NYSE:APHA) at $53M, 4) Tilray Inc. (NASDAQ:TLRY) at $52M, and 5) CannTrust (TSX:TRST) at $50.35M. It is noteworthy that every single one of the LPs listed above trades a significant valuation premium to Supreme Cannabis, as well as several companies with lower reported revenues.  

Looking Ahead

The Supreme Cannabis Co. (TSX-V: FIRE) (OTCQX: SPRWF) represents a compelling investment opportunity in the burgeoning cannabis industry. With its disciplined approach to the market, the company is laser-focused on generating high rates of return on its deployed capital and ultimately building significant long-term shareholder value.

For more information, visit the company’s website or download its investor presentation.

Disclaimer

The above article is sponsored content. Emerging Growth LLC, which owns CannabisFN.com and CFN Media, has been hired to create awareness. Please follow the link below to view our full disclosure outlining our compensation: http://www.cannabisfn.com/legal-disclaimer/

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.