FinancialBuzz.com’s latest Buzz on the Street Show: Featuring Our Corporate News Recap on “WeedMD Reports Second Quarter 2019 Financial Results.”
WeedMD Inc. (TSX-V: WMD) (OTCQX: WDDMF) (FSE: 4WE), a federally-licensed producer and distributor of medical-grade cannabis, is pleased to report its financial and operating results for the three months ended June 30, 2019, including net revenue of $8.0 million and a gross margin of 46%.
WeedMD Inc. is the publicly-traded parent company of WeedMD Rx Inc., a federally-licensed producer and distributor of cannabis products for both the medical and adult-use markets. The Company owns and operates two facilities: a 26,000 sq. ft. indoor facility in Aylmer, Ontario and a 158-acre state-of-the-art greenhouse and outdoor facility located in Strathroy, Ontario. The Company currently has 136,000 square feet of licensed production space across its facilities and is expected to have a total footprint of more than 550,000 square feet of indoor and greenhouse production in addition to more than 25 acres of outdoor cultivation space online in the first half of 2019. WeedMD has a multi-channeled distribution strategy that includes selling directly to medical patients, strategic relationships across the seniors’ market and supply agreements with Shoppers Drug Mart as well as six provincial distribution agencies.
With the “green rush” intensifying, cultivators are tasked with the challenge of meeting consumer demands. As such, cultivators around the world are building large scale facilities in order to produce tons of cannabis. For instance, U.S. states such as Arizona, Colorado, California, and Oregon are creating greenhouses that yield upwards of 50,000 pounds of flower. Similarly, Canadian producers are building mega greenhouses in regions such as Europe and Australia, as their respective markets begin to grow. However, obtaining licensing in order to operate a grow facility is highly competitive. The Government of Canada reported that there were 179 companies that obtained licenses from Health Canada for cultivation, distribution, and production. The number of applicants also sharply rose when Canada fully legalized cannabis back in October 2018. Health Canada has been steadily approving licenses, yet, companies are still challenged with meeting a consumer base of millions. According to Statistics Canada, by the end of the first quarter of 2019, there were reportedly 5.3 million or 18% of Canadians aged 15 years and older who smoked cannabis in the prior 3 months. Among the group, 646,000 users reported that they were trying cannabis for the first time, nearly double the estimated number of 327,000 a year ago. Moreover, almost half of Canadian cannabis users reported that they obtained their products from a legal source compared to just 23% back in 2018. The staggering change highlights just how swiftly the legalization of cannabis has impacted Canada. So far, the Canadian government has limited many companies in terms of their grow house sizes and the quantity of cannabis they can produce. The strictly enforced regulations ultimately led to major shortages across Canada shortly after legalizing cannabis. Nonetheless, more and more companies are gradually obtaining licenses and agreements in order to produce cannabis to meet the accelerating demand. According to data compiled by Verified Market Research, the global marijuana market was valued at USD 42.20 Billion in 2016. By 2025, the market is expected to reach USD 466.81 Billion while registering a CAGR of 35.3% from 2018 to 2025.
Generally, most cultivators operate indoor and greenhouse facilities because they can control the entire growing process of the plant. However, indoor and greenhouse facilities are significantly more expensive as opposed to an outdoor facility. According to Cannabis Business Plan, the average initial cost of an indoor 7,700 sq. ft. warehouse for approximately 1,000 plants is roughly around USD 830,000. Typically, 1,000 plants will net the grower about 350 pounds of flower total. Indoor cultivators have higher expenses due to costly equipment such as temperature and humidity control systems. As a result, wholesale indoor grow houses typically cost about USD 75 per sq. ft., according to Marijuana Business Factbook 2017. On the other hand, outdoor facilities are exponentially cheaper because growers harness sunlight to produce a more natural product. The average cost per square foot of wholesale outdoor facilities cost is approximately USD 10. The expansive size of outdoor grow houses solely rely on natural soil, lighting, and favorable weather conditions, meaning they also have very few infrastructural needs. Moreover, outdoor plants that are well cared for can normally produce three to four times more qualitative final product when compared to those grown indoors, according to Cannaporium. Furthermore, as legalization continues to spread, more outdoor facilities are expected to emerge in regions where favorable weather conditions are present. “Today the cannabis industry is defined by individual state markets, where no product can cross state lines due to laws prohibiting interstate commerce of a federally illegal product. But when prohibition eventually ends, then interstate commerce will open and businesses will be allowed to import their cannabis from any state in the country. When this happens, we can expect that large-scale outdoor and greenhouse production will dominate the market as cannabis commodifies,” said Kris Krane, Co-Found and President of 4Front. “Many of the same environmental conditions that make northern California ideal for the production of grapes for wine will also make it ideal for large-scale commercial cannabis production.”
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