THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 2
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THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 2 ®
Quarterly Issue No. 2 | 2016
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Group Publisher Terry Tremaine Editor in Chief James Black Graphic Design Vanessa Fryer
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CEO’s Message
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7 Difference Makers CSE’s top performers share more in common than you might think
company profiles
16 Urbana Mix of private and public holdings beats street, appeals to deep value investors
18 Laguna Blends Combining unique product, technology edge to put own spin on network marketing
20 Captiva Verde Building serious revenue momentum as its organic farms hit their stride
22 Supreme Pharmaceuticals Shaping medical marijuana strategy around Canada, with potential for overseas markets down the line
www.thecse.com @CSE_News
24 Beleave Advancing smooth through Medical Marijuana approvals with eye on big sales, margins www.thecse.com | 5
THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 2
CEO’s Message Welcome to the CSE Quarterly, the Canadian Securities Exchange’s publication that profiles the stories of entrepreneurial companies listed on the exchange. Now in its third year of publication, the CSE Quarterly has witnessed the CSE’s listed issues count grow from 220 to just shy of 330. Trading volume is continuing to set new highs and we have seen a greater diversification of our listings that reflects the spectrum of innovation in Canada. These developments are the result of the efforts, ingenuity and persistence of the entrepreneurs who have chosen to list with the CSE. In this edition we profile the stories of 9 of these firms. The recurring theme throughout all of these stories is that these companies are difference makers in their respective fields.
RICHARD CARLETON, CEO Canadian Securities Exchange (CSE)
I also want to take a moment to highlight some of the investments we’ve recently made at the CSE that showcase our ongoing commitment to better serve issuers and investors. The numbers also show that we’re headed in the right direction. Our new and fully rebuilt website (thecse.com) officially launched in April. Designed around the evolving needs of our stakeholders, the website is optimized for mobile users, is easier to navigate, and offers a deeper suite of information and tools with which to research our market and individual issuers. I invite readers to visit the new website to experience some of the highlighted features including: • Enhanced listed issuer pages which feature price quotes, market depth (by price and order), interactive charts, news releases, documents filed with the exchange, and searchable SEDAR filings; • A Market Activity page with broader exchange data, expanded charting and information tools for the CSE Composite Index, as well as regulatory materials; • A regularly updated blog featuring exchange news, regulatory initiatives, event coverage and added content on companies featured in this magazine, including video content. Another important milestone I am happy to report is that trading volume recently reached the highest level in the CSE’s history for a four-month period. Volume surged 34.7% year on year from January through April 2016 to 1.15 billion shares. This outpaced the previous four-month record (September through December 2015) by 22.7% and is an encouraging sign that investors are increasingly seeking out our market to trade securities. In reading about the journeys of the difference makers profiled in this edition of the CSE Quarterly, I trust readers will understand why I am looking forward to what’s coming next at the Exchange for Entrepreneurs. Please enjoy the issue. Sincerely,
Richard Carleton
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THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 2
feature story
Difference Makers
CSE’s top performers share more in common than you might think
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very investor in microcap stocks is in it for the big win, targeting double-digit or larger gains virtually every time they make a purchase. Alas, if only it were that easy…most microcaps don’t turn in market-beating performance, and far too many end up costing investors all of their money. Professional money managers typically follow a strict set of rules for choosing the stocks to include in their portfolio—a formula, if you will, to help make the right choices. Stellar returns remain far from assured, but winning companies seem to share particular traits that are easily identifiable.
By the same token, public company managers can take certain steps to give their companies the best chance for success, both in attaining corporate goals and in achieving full valuation in the market—objectives that are not exactly mutually exclusive. The CSE has been home to more than a few prolific performers over the years and we profile four recent success stories in this article. What makes these companies tick, why are their shares investor favourites, and what exactly do they do that enables their respective stock prices to perform so well? Is there a magic formula? Let’s find out. www.thecse.com | 7
Originally published on Proactive Investors May 25, 2016.
By Peter Murray
THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 2
Manhole slack
A clean cut
Lite Access uses specially designed proprietary equipment to create “micro-trenches” into which it places exclusive crush-proof microduct (micro-conduit) designed for all types of telecom applications, both for today’s needs and those of the future. The microduct serves as a medium through which optical fibre is blown using compressed air to create high-speed broadband connectivity in a matter of minutes and at a cost far less than with traditional cable installation methods. The beauty of the system, and a main factor driving demand, is the lack of interference with the local environment and archaeologically sensitive areas both during initial installation and any subsequent upgrade cycle. As the micro-trenches are narrow, Lite Access installation teams can be in and out of a site quickly (micro-trenching and installing up to 1 metre per minute of microduct) and at a cost much lower than more disruptive conventional methods. Later, when fibre needs to be replaced due to technological obsolescence or upgraded in support of future growth requirements, there is no need to dig up the roadway again. Lite Access simply blows new fibre from the starting point through to its destination at the other end and, voila, there is your upgrade. Nobody outside of the companies involved even knows it took place. As Plotnikoff explains, Lite Access is a pioneer in the micro-trenching and air-blown fibre business, and as
the industry shifts into high gear he has a proven team behind him that has successfully completed dozens of projects globally, some quite challenging from an engineering perspective and at times not possible using traditional installation methods. Well-rounded project and management experience is serving Lite Access well from both an operations standpoint and in the market with investors. It is one of several important boxes it has ticked. Good people? Check. And that includes over a dozen partners around the world certified to install microduct and handle air-blown optical fibre installation. These partners will contribute to a re-balancing of the revenue stream in future years as they collectively come to install more of Lite Access’s patented equipment and supplies than the company does itself. Good financial management? Check that box, too. Lite Access has just 30.6 million shares outstanding and no financing has been conducted since the initial $0.25 round. A corporate update released February 1 explained that milestone payments had been received on a $7 million project for BC’s Haida Gwaii community, plus there was over $1 million in receivables and inventory on the most recent balance sheet. Another key point to note is that with the types of customers Lite Access has—which include cities and municipalities, First Nations and Native Americans, as
Microtrench finished product
well as private enterprise and local governments—odds are the company rarely, if ever, finds itself chasing anyone for payment. Plotnikoff speaks warmly about shareholders he has interacted with over the past year, saying some have essentially become advocates for the brand, helping build awareness and even calling in with business opportunities. Shareholders are welcome to visit the company’s headquarters and main warehouse in Richmond, British Columbia, if that level of contact is important to them. “Our shareholders are comfortable because they have an open line of communication and clear, transparent access to information,” explains Plotnikoff. “I like to think that if we preserve that approach as a principal component of our corporate culture and continue to deliver growth, we will always have a strong degree of support in the market.”
www.thecse.com | 11
urbana
THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 2
Urbana Mix of private and public
holdings beats street, appeals to deep value investors By Peter Murray
Originally published on Proactive Investors May 25, 2016.
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ne would think that with a track record like Urbana Corporation’s (CSE:URB; TSE:URB) the chance to buy its shares at a discount would be almost non-existent. At an annual return based on net asset value exceeding 14% since it was launched in 2002, Urbana easily ranks as one of the better performing investment companies on the block. Puzzling then that its stock is priced around $1.97, while its per-share net asset value is closer to $3.50. “Since October 2002 the rate of growth has been just under 14.54% but the share price is at a significant discount to the asset value, to an extent due to lack of coverage,” explains Thomas Caldwell, Urbana’s President and CEO. Caldwell, of course, is also Chairman of investment dealer Caldwell Securities Ltd. He is well known on Bay Street and Wall Street for making big returns from investing in stock exchanges. “At one point we owned 37 exchanges,” Caldwell notes. That legacy remains a major part of the Urbana investment approach, reflected these days more so in the heavy portfolio weighting in companies involved with the financial industry, be they major banks or service providers to the mortgage business. “That is where I spent most of my career and is an area we like to think we understand,” Caldwell says. In many ways, Urbana is structured to offer investors the best of all worlds. It has just shy of $200 million under management, about 55% in public investments, plus 45% in private investments that its shareholders would almost certainly be otherwise unable to access. Another benefit is that the closed-end nature of the fund is a perfect fit for Caldwell’s investment strategy. “A closed-end investment corporation like Urbana is a great way to manage
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Jason Smith, CEO Real Matters
money because the capital we have is permanent,” he explains. “The problem with mutual funds is that you get your money at the worst time—at the top of markets—and you lose it at the best time—at the bottom of markets. But that is when you should be doing the opposite—you should be selling at the top and buying at the bottom. If a market is going down I am not worried about a run-off of assets and that’s where I make our money. I’m a bargain hunter.” Well-represented sectors these days include US financials, which Caldwell says make up 32% of the portfolio, while a recent move into a set of holdings he calls “Canada Inc.” saw Urbana take meaningful positions in Barrick Gold (TSX:ABX), Suncor Energy (TSE:SU) and Teck Resources (TSE:TCK.A). “Our Canadian banks are up 10%, Suncor is up a few percent, and Teck is up 100%,” Caldwell explains. One of the CEO’s favourite holdings is a private company called Real Matters. Real Matters runs a technology platform and network of more than 100,000 independent field agents that help financial institutions and other entities in the real estate business perform appraisals, insurance inspections, title searches and mortgage closings. Its customers include 60 of the top 100 mortgage lenders in the US and a number of large insurance companies. “Real Matters is run by an extremely bright executive named Jason Smith,” says Caldwell, noting that he invited the Real Matters President and CEO to speak at Urbana’s annual general meeting this year. “I say now that I am not interested in ideas anymore. I am only interested in people who can execute on ideas. He can do that.” Caldwell sees Real Matters eventually listing in the public
THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 2
realm via an IPO, a path that Urbana likes its private investments to move along as they grow and mature. Another successful holding on the private side that anyone who follows Urbana will be aware of is the Canadian Securities Exchange, in which the investment company holds a major stake. Caldwell also serves as the exchange’s Chairman. “The CSE fills a role that I believe, and my directors and partners believe, is important to Canada,” explains Caldwell. “Canada is an entrepreneurial country but it is very hard to build a company here because we are losing a lot of independent dealers and don’t have the big venture pools like they have in Silicon Valley. So what the CSE can do as an exchange is to simplify the role of accessing capital. “Ned Goodman (Deputy Chairman of the CSE and founder of Dundee Corporation—a significant shareholder in the CSE) and I both say the same thing—we feel the CSE is an extremely important link in Canada’s prosperity going forward. We pursue this with almost religious fervor because both Ned and I feel so strongly in terms of helping Canadians. Remember, the large financial institutions and many of the resource companies are going to be generators of unemployment in the years to come. New jobs and head offices are only going to come from new enterprise. That’s where the CSE lives and that’s what we try to nurture.” Fervour certainly is an apt word to describe the way Caldwell feels about the industry he has built his life around, and it troubles him to see certain pillars of the financial community struggling so mightily. “Independent brokerage firms
are being massacred and that is going to impact Canada’s standard of living, the number of head offices and new companies,” he explains. “It is a difficult environment right now for new companies trying to raise money. Regulators don’t see that they are addicted to evermore regulation and the damage they are doing to the economy.” Asked about the possibility of Urbana seeing this as an opportunity, Caldwell suggests he needs to know more. “I’d love to sit down with regulators at some point and find out what their intention is. If they are planning to wipe out an industry, which it appears they are, then naturally I would not be doing bargain hunting in it.” In the end, he suspects the over-regulation he witnesses does not even achieve its intended objective. “Quite often in an onerous environment the people who will work hard to jump through the hoops are the ones with the more speculative deals. So it does not even mean that you are thinning the ranks of the villains because those are the ones that will bend the rules.” Regulation run rampant is an issue Caldwell sees as a threat to the Canadian economy but, paradoxically perhaps, he sees strict regulation of the financial industry in the US creating an investment opportunity. “There has been tremendous regulatory pressure on US banks and it is the shareholders who suffer,” says Caldwell. “Our feeling is that they will have to ease up, which would be good for the
Tom Caldwell, CEO Urbana Corporation
banks. If they don’t then US banks may unilaterally break themselves back up into commercial and investment banks, which I think would also be good for the stocks. If history has shown us anything it is that when you break up a company, the parts are usually worth more than the whole.” With the discount to net asset value at Urbana so significant, it makes sense to use a portion of the corporation’s capital to buy back its own shares. “We have been very aggressive buying back stock and cancelling it,” says Caldwell. “We have bought back about 37 million shares at a discount, and this has benefited the remaining shareholders.” The buyback has doubtlessly contributed to share price stability, but there still remains a gap wide enough to present opportunity for new investors. “The great bargain right now with Urbana is that for $2.00 you get $3.50 working for you, and that $3.50 has been growing at over 14% per annum for the last 14 years. The stock price will eventually catch up with it but I think in the meantime you can get pretty good management and assets at a discount.”
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laguna blends
THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 2
Laguna Blends Combining unique product, technology edge to put own spin on network marketing By Peter Murray
Originally published on Proactive Investors May 25, 2016.
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echnology companies are renowned for their rapid growth rates, but apparently even they can’t keep up to successful groups in a tried-and-true business that many of us are in contact with all the time. Network marketing, also known as multi-level-marketing (MLM), is the practice of individual direct sales coupled with recruitment of new direct sellers by existing salespeople. If you are thinking Amway, you’re on the right track. With some 3 million salespeople worldwide, Amway is the MLM king, recording US $9.5 billion in sales in 2015. Avon (NYSE:AVP) and Herbalife (NYSE:HLF) are among other big MLM names. Laguna Blends (CSE:LAG) is the latest entry onto the MLM scene and the potential to go from zero to 100 overnight was one of the key factors that convinced its founder to go all in. “I have put over $1 million of my own capital into the company,” says Stuart Gray, Laguna’s CEO. “Successful MLM groups grow faster than tech companies so one of the nice things about Laguna is that we have the ability to get bigger really quickly.” Laguna began its sales quest in March focused on the nutritional and health benefits of products containing hemp. Hemp is known for being rich in protein, as well as omega fatty acids 3, 6 and 9, plus magnesium and other nutrients important to a balanced diet. Gray summarizes the product category as “functional beverages” given that a hemp-infused instant coffee and four flavours of a sports drink mix called Pro 369 (after the omegas)
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comprise the initial product line. Gray originally learned about the benefits of hemp as a consultant to several companies in the medical marijuana industry. But while the health benefits of hemp strains used for food, as opposed to intoxication, were obvious, he felt that the approach to selling these products could be improved upon. “We see hemp-based products on the shelves at many of the biggest food retailing names in the world, but in some cases the product has not sold through as well as the producers thought it would,” says Gray. “There remains a lot of education that needs to take place as to the true value of hemp, so we chose direct marketing because it enables potential customers to really learn about what they are buying.” Gray understands that MLM is an ultra-competitive universe and as such is relying on more than just unique products to set Laguna apart. “We are definitely differentiating ourselves by pioneering hemp-based products that nobody else has,” explains Gray. “But really, how we separate ourselves is through technology. We have virtual 3D technology that replaces the need to go to hotel meetings to learn how to recruit. Everything you need to build your business is on there.” The objective of a company such as Laguna is to provide products, infrastructure, support and training for independent affiliates, he explains, whose role it is to then go out and build the business through sales and Stuart Gray, CEO Laguna Blends recruitment.
captiva verde
THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 2
Captiva Verde
Building serious revenue momentum as its organic farms hit their stride By Josh Allsopp
Originally published on Proactive Investors May 17, 2016.
A
neat carpet of green can be seen stretching as far as the eye can see, like a well-tended lawn of some grand country manor. But this is right in the middle of the California desert. It’s just one of Captiva Verde’s (CSE:VEG) many organic vegetable farms in isolated patches across the California and Arizona desert. Being organic, the farms deploy no chemical pesticides or synthetic fertilizers. There is a big cultural shift as organic becomes the mainstream, with 78% of US families buying organic produce, which means it’s big business… if you can get it right. Organic farms are 35% more profitable than the average farm and in retail stores organic prices are typically double conventional prices. Yet currently only 0.5% of US farmland is suitable for organics. According to the Research Institute of Organic Agriculture and International
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Federation of Organic Agriculture Movements, global retail sales of organic food are estimated at US $72 billion. North America represents 48% of this global demand. Captiva Verde is taking a run at this giant market. Worth just CDN $20.5 million, it is fair to say the company is a comparative minnow in the field of agriculture. But founder Jeff Ciachurski is ambitious: “You’ve got to have a lot of guts,” he says. “You need to go in with a big operation and take the chance.” Ciachurski made his fortune in sustainable power after he founded Western Wind in 2002 with an initial investment of CDN $250,000. Just over ten years later he sold the company to Brookfield Renewable Energy Partners for $420 million. As important as the project is the person behind it; the man or woman with the relentless drive and will to win.
“I made a very big success for my shareholders; in fact I was one of the few guys in the entire worldwide market place that made a whole lot of money in the wind and solar space,” says Ciachurski. “So I’ve got a knack for finding high quality deals and ones that really take a lot of perseverance, a lot of emotional energy and challenges.” And he thinks there are lessons he learned from his former employment that are directly applicable to the world of organics. “There is a huge regulatory landscape you need to navigate. But we successful entrepreneurs take on the big challenges,” Ciachurski says. Captiva Verde was founded in 2014 and is certified by the United States Department of Agriculture (USDA). Ciachurski’s team now farms 3,700 acres, the majority of which is leased, and the group is looking to add another 2,270
THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 2
“
We are fast making money in a dynamically growing sector, and that’s what investors want to see. —JEFF CIACHURSKI
”
acres in the southwest US for organic cultivation. fluctuate minute to minute, while it proved its The farmland is managed by a team with exoutput was reliable. tensive experience in organic vegetable farming, “The risk is no one will buy from you until you food processing, clean energy and land develcan prove to them you can grow big quantities. opment in California and Arizona. At one time US $9 million worth of supply had The isolated fields in Arizona, Imperial Valley to be re-ploughed back into the ground,” Ciaand Tehachapi are all at different elevations churski laments. for production synched to optimal climate conIt’s only really in the last month Captiva has ditions, allowing for 365 day a year harvesting found itself in the happy position of selling all Jeff Ciachurski, Founder Captiva Verde and crop rotation. its production on contract. If the vision above is one of man in harmony “That means that everything we grew already with his environment, the state of California, had a buyer by the time it goes in the ground,” with some 20,000 organic farms, reveals what happens when adds Ciachurski. agriculture of this sort is done on an industrial scale. So what does the future hold? It has been a challenge for Captiva Verde, not just meeting “Tremendous growth,” Ciachurski says. the exacting farming standards, but winning over retailers. The organic vegetable market is worth around US $35 billion “The certification program in California is so tough. The reality a year and is expanding at some 12-15% annually. That rate is of organics is that the standards are way beyond what you’d forecast for the next 10 years. call sustainable,” said Ciachurski. Captiva, meanwhile, is making remarkable financial headway. “The US is a very litigious place, California especially so. There In 2015 it reported US $9 million of losses. By November it is a very large and robust food safety program. You want to make was producing US $500,000 a week worth of vegetables but sure the buyers know you have a top rated food certification.” selling it at only $200,000. Scrutiny was intense to gain National Organic Program cerAs of 8 May, Captiva has 455,000 pounds of produce a week tification. And meeting the food standards and safety criteria fully contracted, which brings in US $570,000 a week in sales can be very costly, which is often a deterrent or inhibitor to (the equivalent of almost CDN $30 million of annual sales). smaller, less well-funded groups. “We are the only company that even has those kinds of revHow many small businesses could fund a four-mile fence to enues on the CSE and the only publicly traded 100% organic avoid cross-contamination from animals? Captiva was forced farming company,” he points out. to bear these costs to gain USDA certification for just one Further expansion is on the books as Captiva looks to some 600-acre farm. strategic acquisitions. “We take 300 tissue samples per acre to test for bacteria,” The company announced last month that it was considering states Ciachurski. buying two companies—a large food broker and a substantial “All this can be a big setback for the smaller guys, who salad making operation - to expand right through the organic often have to sell at the farmers market because the big end produce supply chain. retailers would not find their standards remotely adequate to The acquisitions will add a further US $13 million of sales get onto their shelves. a year for the group. “That’s why you have to raise the capital; it’s a big risk with “We’re a growing company in a growing market. Since Ocbig money at the start.” tober 2015 we started from zero sales to now US $1 million Captiva also had to convince potential buyers of produce a month. Now, as of May, we are moving to US $2.5 million a that its farms were capable of producing enough to meet the month,” explains Ciachurski. demand from retailers such as Whole Foods and Trader Joe’s. “We are fast making money in a dynamically growing sector, It was stuck for five months in the spot market, where prices and that’s what investors want to see.” www.thecse.com | 21
supreme pharmaceuticals
THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 2
Supreme Pharmaceuticals
Shaping medical marijuana strategy around Canada, with potential for overseas markets down the line By Philip Waller
Originally published on Proactive Investors May 18, 2016.
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egalising marijuana for medical use can still be a thorny topic in some countries. But Supreme Pharmaceuticals Inc. (CSE:SL) is hoping to lead the way in harnessing its acceptance and benefits in Canada. Supreme obtained regulatory approval to grow medical marijuana at its site in Kincardine, Ontario, in March. The company is on track to harvest its first crop in the summer and hopes to get final approval to sell it in September or October. In the US, four states have legalised the plant for recreational use and 12 others allow its consumption for medical purposes, although that remains a relatively small proportion of the country as a whole. But in Canada, the medical marijuana business has legalised progressively in the last 15 years. A key milestone came in 2014 when the government’s Health Canada arm introduced the Marijuana for Medical Purposes Regulations. The government also said last month it will press ahead in 2017 with plans to legalise marijuana for adult recreational use. That market is expected to be worth $5 billion a year by 2020 according to leading industry analysts. Supreme is targeting a domestic medical market, which it expects to be worth about $100 million by the end of this year
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and $1.2 billion by 2020. Supreme’s President and Chief Executive, John Fowler, said he believed Canada was doing better than other countries in overcoming concerns about using the plant for clinical purposes. “I wouldn’t say the stigma has gone but we’re moving in the right direction,” he said. Fowler began working in the medical marijuana sector more than 10 years ago. He pursued a legal career to help medical marijuana patients with legal challenges relating to access, jobs and tenancies, working on major cases. He now sees his mission as being not only to provide Canadians with access to high-quality, low-cost medical marijuana, but to work with physicians to improve their awareness and support for it. “The hope is that the doctor will be more educated and more willing to subscribe to the company’s products,” he said. Supreme and its wholly owned subsidiary, AMMCan, have set up a federally-licensed, seven-acre greenhouse in Kincardine on the shores of Lake Huron. When fully operational, the Company expects to be able to produce in excess of 50,000 KG per year. Supreme has obtained exclusive rights to work with inter-
THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 2
Exterior of Greenhouse
Grow Room
national seed supplier Dinafem. The arrangement will provide Supreme with access to over 100 unique cannabis strains to put into production in the Kincardine greenhouse. “Choosing the right genetics is one of the most important aspects of producing high quality cannabis for both medical and recreational markets. It was important we seek out a partner like Dinafem to ensure we grow only the best genetics in our greenhouse which will maximize output, increase quality and have a direct impact on our bottom line,” Fowler said. Supreme has raised more than $10 million, three quarters of which it has spent on fitting out the greenhouse and the rest of which it still has in the bank. It expects those reserves to sustain it until it starts earning revenue from marijuana sales later this year. Supreme is among about 25 companies holding 31 licences to produce medical marijuana. The current market of about 45,000 patients is increasing at a rate of about
5,000 per month and is on track to more than double in this calendar year. Supreme’s primary aim was to supply the consumer market direct by mail order. But it is exploring the possibility of becoming more of a business-to-business supplier of licensed marijuana to other companies that would retail it. Fowler said: “The benefits of that are long-term, stable revenue based on supply agreements, rather than volatile revenues from retail.” Supreme has had to take extensive security precautions at Kincardine to prevent theft, such as high fencing and cameras, and the end product is stored in a vault. “We like to joke that our marijuana in the vault will be more secure than our money in the bank,” Fowler said. Fowler also acknowledges the general risk of abuse of the product. However it is worth pointing out marijuana consumption is seen to be less dangerous than tobacco or alcohol with few reported side effects, he said.
Nursery
Strict regulation compels the company to ensure its products are not contaminated by pesticides or other substances that may be in marijuana bought from street dealers. Supreme has international ambitions and is eyeing opportunities in countries such as Australia, Germany and Austria. Canberra recently legalised marijuana for medical use and Berlin and Vienna are considering doing the same. The company believes it will be able to generate $200 million in annual domestic revenues within the next decade. This keeps the company’s focus on executing on its domestic business as a top priority. Fowler said: “It’s very important to me as the Chief Executive that we don’t allow the prospect of new markets to in any way negatively affect our primary market, which is right here in Canada.”
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beleave
THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 2
Justin Kosalka and Roger Ferreira
Beleave
Advancing smoothly through Medical Marijuana approvals with eye on big sales, margins By Jamie Ashcroft
Originally published on Proactive Investors May 17, 2016.
A
s the social narrative and legal argument surrounding marijuana continues to evolve, an intriguing dilemma is posed for a typically conservative mainstream investment community. Investors looking at Beleave Inc. (CSE:BE) will likely have polarised opinions depending upon their age, politics and life experience. Indeed, the issue of marijuana’s decriminalisation and commercialisation is very much loaded. But, whatever an individual’s standpoint on the moral or ethical merits of this emerging industry, one thing is quite clear; a pragmatic look at the business case reveals a compelling argument for the growing sector. Marijuana sales reached nearly US $1 billion in 2015 for the state of Colorado, where the drug was cleared for recreational sale just over two years ago. According to the state’s authorities some US $135 million was collected in taxes and fees related to the pot business that year. Colorado is one of four US states to legalise marijuana for recreational use (the others are Alaska, Oregon and Washington). Twelve others, including big markets such as California and Nevada, now allow consumption for medical purposes.
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In Canada, the medical marijuana business has legalised progressively over the past 15 years. But, the major turning point came in 2014 with the introduction of the Marijuana for Medical Purposes Regulations (or MMPR) by the government’s Health Canada arm. Newly-elected liberal Prime Minister Justin Trudeau in November announced that marijuana would be legalised for recreational use in Canada during 2017. It represents a major opportunity, particularly for Beleave. Although there’s a lot going on around the edges for Beleave— with the company working on various research and development projects—at the moment the story is quite a simple one.
BELEAVE IS THE NEXT MAN UP FOR REGULATORY APPROVAL Around 30 companies have been given the regulatory green light for medical marijuana. And as Beleave Chief Executive Roger Ferreira explains it, his company is currently in the advanced stages of the
THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 2
regulatory licensing process with Health Canada. Being in the final stages of the approval process, the regulatory decision is expected soon. With the help of chief operating officer Bill Panagiotakopolous, and his construction industry ties, the company has now built at low capital costs a 14,500 square foot production facility designed to meet Health Canada’s requirements. The facility, in Hamilton, will be capable of producing some 550,000 grams of marijuana each year and, crucially, it is designed to be scalable so that the production line can grow in lock step with the commercial side of the business. That scalability will be key. Ferreira says initial market research to date indicates Beleave could sell out its entire capacity within a year from the start of production. Prescribed patients on average con-
sume between one and three grams of marijuana per day, he explains. As such just 270 to 800 registered patients would be needed to max out the group’s supply in year-one, giving the company revenue of $4.2 million with margins of 72%. As demand for the product increases the company has already laid the groundwork for expansion of up to 270,000 square feet with margins increasing to 83% and revenue growing past $100 million. At the same time the demand for licensed marijuana in Canada is forecast to soar. The number of registered patients has grown at a rate of 20,000 patients per year since the regulatory framework was brought in during 2014, and the introduction of a recreational use market is expected to see customer numbers swell further.
SO WHAT’S NEXT IN THE MEDICAL MARIJUANA LICENSING PROCESS? To be green lit in Canada a grower has to complete a three step permitting process. First, the company needs Health Canada to approve the drug for cultivation (i.e. growing). This is what Beleave is currently waiting for. Once licensed for cultivation the company will then be able to legally obtain already sourced seeds and ‘clones’ for planting and begin the process of growing cannabis plants. Health Canada assesses and reviews the operation throughout as part of the new regulation process. A separate license is then required for harvesting. Without a harvesting license the plants cannot be cut, dried or www.thecse.com | 25