Westleaf: A Truly Vertically-Integrated Cannabis Play

Canada’s cannabis industry is projected to reach C$22.6 billion over the coming years, according to Deloitte, driven by the legalization of recreational cannabis last year. Investors have many opportunities to capitalize on the industry’s growth with more than 100 licensed producers, but only a handful of companies have taken a vertically-integrated approach that could eventually turn them into industry giants.

Westleaf Inc. (TSX-V: WL) is a vertically-integrated cannabis company with a presence across the value chain. By taking this approach, the company is maximizing its potential margin, controlling the customer experience, and gathering valuable insights from retail that can be applied upstream to create cutting-edge products and experiences. Investors may want to take a closer look at the company given this unique approach.

Production Footprint

Canada’s cannabis industry continues to experience significant supply shortages, which underscores the importance of in-house production. Many industry experts believe that these supply shortages could worsen with the launch of edibles proposed for October 2019. In addition to a reliable supply, in-house production ensures that strict quality standards are met and eliminates any premiums that must be paid for third-party supply agreements.

Westleaf has a large-scale indoor cultivation facility under construction in Saskatchewan with anticipated capacity of more than 14,600 kilograms of dry flower per year. The first phase involves building out 84,800 sq. ft. of space into 20 grow rooms and a processing hub capable of producing 7,300 kilograms each year. The second phase will use the same processing hub and add another 20 grow rooms to boost total production to 14,600 kilograms per year.

The company’s facility will have roughly the same size and scale as Whistler Medical Marijuana Corporation, which was recently acquired by Aurora Cannabis Inc. (TSX: ACB) for approximately $175 million.

Specialty Extraction Capabilities

Cannabis oils and extracts have already exceeded flower in revenue. In addition to commanding higher margins, oils and extracts are more palatable to consumers that aren’t interested in smoking cannabis. The launch of edible and beverage products in October could accelerate these trends and make specialty extract even more important for licensed producers that want to keep ahead of the latest industry trends.

Westleaf has a 60,650 sq. ft. processing, extraction, and manufacturing center under construction; the company recently renamed the facility The Plant by Westleaf Labs after buying out Delta9. Designed by a team of experts in supercritical CO2 extraction, the state-of-the-art facility will focus on developing a diversified set of SKUs targeting multiple cannabis markets. The Company will initially focus on oils, tinctures and gel caps and when legal, vape pens, edibles and topicals.

These extraction capabilities could put the company on-par with MediPharm Labs Inc. (TSX-V: LABS), a $273 million public company, and other extraction companies in the space.

Premium Retail Strategy

Many licensed producers haven’t focused on branding given the shortages in the market, but these dynamics will change as supply and demand evens out. Controlling brands and the retail experience will be essential for setting products apart from competitors in the market. Few companies have established a strong retail presence in Canada, and even fewer have managed to create distinct brands that resonate with consumers.

Westleaf has developed a premium retail portfolio under the Prairie Records brand with more than 50 locations set to launch in 2019 and 2020 across much of Western Canada. By marrying the instinctual ties between recreational cannabis and music, the company aims to create a unique and engaging retail experience. The company is launching its ecommerce platform to sell online in Saskatchewan in February.

The company’s premium retail approach is comparable to Fire and Flower Inc., which operates a retail chain offering cannabis products and accessories. With $10 million in revenue between October 2018 and January 2019, Fire and Flower’s success underscores the potential for large-scale retail operations in the cannabis industry.

The Bottom Line

Westleaf Inc. (TSX-V: WL) has already secured funding for the cultivation and processing projects using a combination of senior debt and equity. By taking this approach, the company has a lower cost of capital than competitors and limits dilution for shareholders. Investors may want to take a closer look at the stock given the company’s unique vertically-integrated approach, significant operational progress, and its low-cost financing approach.

For more information, visit the company’s website or download their 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.